# Guide to Company Car BIK Tax: 2025/26 Rates Explained

A comprehensive guide to UK company car Benefit in Kind (BIK) tax for the 2025/26 tax year. Learn about the new 3% electric vehicle rate, emission bands, optional salary sacrifice rules, and how to calculate your exact tax liability.

**Published:** 2026-07-06  
**Updated:** 2026-07-06  
**Source:** https://aztajournal.com/gb/company-car-bik-tax-guide-2

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> This guide covers how company car Benefit in Kind (BIK) tax works for the 2025/26 tax year, detailing the new 3% electric vehicle rate, updated emission bands, the £28,200 fuel multiplier, and step-by-step calculations to help you determine your exact tax liability.

Company car Benefit in Kind (BIK) tax is a UK income tax levied on employees who use a company-provided car for private travel. Your annual tax liability is calculated by multiplying the car's **P11D value** by its CO2-based **appropriate percentage**, and then applying your marginal **income tax rate** (20%, 40%, or 45%). Under this system, choosing a car with lower emissions directly reduces the amount of tax you pay.

## Key Takeaways: 2025/26 BIK Rules

- **Electric Vehicle Increase**: The BIK rate for pure electric vehicles (0 g/km CO2) increases from 2% to **3%** for the 2025/26 tax year.
- **Ultra-Low Rates Up**: All plug-in hybrids emitting 1 to 50 g/km CO2 experience a 1 percentage point increase, now ranging from **3% up to 15%** depending on electric-only range.
- **New Fuel Multiplier**: The base multiplier used to calculate the private fuel benefit charge rises to **£28,200**.
- **Employer NICs Liability**: Employers must pay Class 1A National Insurance at a rate of **13.8%** on the total taxable BIK value of the company car.

## What is Company Car Benefit in Kind (BIK)?

A company car Benefit in Kind is a taxable non-cash benefit provided by an employer to an employee for their personal use. Under the statutory framework of the **Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), ss.120–148**, this perk is treated as a form of notional income. Consequently, the employee incurs personal income tax on the benefit's cash equivalent, while the employer becomes liable for Class 1A National Insurance contributions.

## How is Company Car Tax calculated?

Calculating your annual company car tax is a straightforward process based on the vehicle's retail price, its carbon dioxide emissions, and your personal tax bracket.

1. **Establish the P11D Value**: Determine the taxable value of the vehicle, which includes the list price, VAT, delivery fees, and optional extras, minus any employee capital contributions.
2. **Identify the Appropriate Percentage**: Find the BIK percentage corresponding to the vehicle's CO2 emissions and power source, rounding the CO2 figure down to the nearest 5 g/km.
3. **Calculate the Taxable Benefit**: Multiply the P11D value by the appropriate percentage to find the taxable benefit value (cash equivalent).
4. **Apply Income Tax**: Multiply this taxable benefit value by your marginal income tax rate (20%, 40%, or 45%) to find your annual UK tax liability.

### Step 1: Calculating Your Car's P11D Value

The P11D value represents the taxable capital cost of your company vehicle. It comprises the manufacturer's list price, standard VAT, delivery charges, and any factory-fitted options. However, it explicitly excludes road tax (Vehicle Excise Duty) and the first-year vehicle registration fee. Under **ITEPA 2003**, you can deduct a maximum capital contribution of £5,000 if you personally paid toward purchasing the car, which permanently lowers its taxable P11D baseline.

### Step 2: Finding the Appropriate BIK Percentage Rate

Your car's official CO2 emissions determine the appropriate BIK percentage band. To find your bracket, your vehicle's specific CO2 figure is rounded down to the nearest 5 grams per kilometre (g/km). Pure electric vehicles and plug-in hybrids fall into preferential ultra-low emission bands, whereas petrol and diesel cars are subject to higher percentage rates. Diesel vehicles that fail to meet the Euro 6d (RDE2) emissions standard are subject to a 4% surcharge, up to a maximum cap of 37%.

## 2025/26 BIK Rates: Zero and Ultra-Low Emission Cars (0-50 g/km)

Plug-in vehicles are taxed based on their electric-only mileage range, with longer-range vehicles rewarded with lower tax brackets.

| CO2 Emissions (g/km) | Electric Range (Miles) | 2025/26 BIK Percentage |
| --- | --- | --- |
| 0 (Pure Electric) | N/A | 3% |
| 1–50 | 130 or more | 3% |
| 1–50 | 70–129 | 6% |
| 1–50 | 40–69 | 9% |
| 1–50 | 30–39 | 13% |
| 1–50 | Less than 30 | 15% |

## 2025/26 BIK Rates: Petrol, Hybrid and Diesel Cars

For vehicles emitting 51 g/km or more, BIK percentages scale upward to a maximum cap of 37%. Diesel vehicles must add a 4% surcharge unless they are certified to Euro 6d (RDE2) standards.

| CO2 Emissions Band (g/km) | 2025/26 Petrol/Hybrid BIK % | Non-RDE2 Diesel BIK % (with 4% Surcharge) |
| --- | --- | --- |
| 51–54 | 16% | 20% |
| 55–59 | 17% | 21% |
| 60–64 | 18% | 22% |
| 75–79 | 21% | 25% |
| 100–104 | 26% | 30% |
| 120–124 | 30% | 34% |
| 140–144 | 34% | 38% (Capped at 37%) |
| 155–159 | 37% | 37% |
| 170 and above | 37% (Capped) | 37% (Capped) |

## What are the Company Car Benefit in Kind income tax changes for 2025/26?

The tax landscape for company cars has become more expensive for hybrid and electric vehicle drivers in the 2025/26 tax year.

| Tax Metric | 2024/25 Tax Year | 2025/26 Tax Year |
| --- | --- | --- |
| Pure Electric Vehicle BIK Rate | 2% | 3% |
| Plug-in Hybrid (130+ mile range) | 2% | 3% |
| Plug-in Hybrid (70-129 mile range) | 5% | 6% |
| Plug-in Hybrid (40-69 mile range) | 8% | 9% |
| Private Fuel Benefit Multiplier | £27,800 | £28,200 |

## How Does the Company Car Fuel Benefit Charge Work?

If your employer provides any fuel that you use for private journeys, HM Revenue and Customs treats this as an additional taxable perk. Under current regulations, the annual fuel benefit is calculated by applying your vehicle’s BIK percentage to a fixed national multiplier, which is set at **£28,200** for the 2025/26 tax year. For example, if your company car has a 30% BIK rating, your taxable fuel benefit is £8,460, resulting in £3,384 in annual tax for a 40% taxpayer.

## Worked Examples: How Much BIK Tax Will You Pay?

To compare your options, consider these two distinct driver profiles and their respective tax obligations for the 2025/26 tax year.

- **ProfileA (Petrol Car)**: A petrol vehicle with a P11D value of **£30,000** and CO2 emissions of **120g/km** belongs to the **30%** BIK band. For a 40% higher-rate taxpayer, this equals a taxable benefit of £9,000 and an annual tax liability of **£3,600**.
- **Profile B (Pure Electric Car)**: A zero-emission electric vehicle with a P11D value of **£40,000** belongs to the **3%** BIK band. For a 20% basic-rate taxpayer, this equals a taxable benefit of £1,200 and an annual tax liability of **£240**.

## Key Adjustments: Salary Sacrifice, Classic Cars, and Unavailability

Specific statutory adjustments under **ITEPA 2003** can alter the final cash equivalent value of your company car benefit.

- **Pro-Rata Reductions**: Under **s.143**, your taxable BIK value is reduced proportionally if the vehicle is physically unavailable for your use for 30 or more consecutive days in the tax year.
- **Private Use Contributions**: Under **s.144**, any direct financial contributions you make to your employer for the private use of the vehicle are deducted directly from the taxable benefit total.
- **Salary Sacrifice Rules**: Under optional remuneration rules (**s.120A**), if you obtain a car through salary sacrifice, you are taxed on the higher of the sacrificed amount or the standard BIK value. This rule does not apply to cars with CO2 emissions below 75 g/km.
- **Classic Cars**: Under **s.147**, vehicles aged 15 years or older with a market value exceeding £15,000 are subject to alternative valuation mechanisms based on current market value rather than original P11D cost.

### How is company car BIK calculated if I only have the car for part of the tax year?

If a company car is only made available for a portion of the tax year, the annual taxable benefit is adjusted. Under ITEPA 2003 section 143, the calculation is reduced on a pro-rata basis to reflect the exact number of days the vehicle was officially available to you.

### How does salary sacrifice affect company car BIK tax in 2025/26?

Under standard optional remuneration arrangement (OpRA) rules, you must pay tax on the higher of the cash salary sacrificed or the car's standard BIK value. However, safe-harbour exemptions remain in place for low-emission vehicles; if the car emits 75 g/km of CO2 or less, you are taxed solely on the standard BIK calculation.

### What is the BIK rate for a pure electric company car in 2025/26?

For the 2025/26 tax year, the BIK rate for a pure electric company car (0 g/km CO2) is set at 3%. This is a 1 percentage point increase from the 2% rate applied during the 2024/25 tax year.

### Will I have to pay national insurance on my company car choice?

No, employees do not personally pay Class 1 National Insurance contributions on company car benefits. Instead, your employer is solely responsible for paying Class 1A National Insurance at a rate of 13.8% on the taxable value of the benefit.