If your employer provides you with a car that is available for private use, you pay tax on the Benefit in Kind (BIK) value. The amount depends on the car’s list price, its CO2 emissions, and your personal tax rate. Electric cars currently enjoy very low BIK rates, making them the most tax-efficient company car option.
How the Tax Is Calculated
The taxable benefit is:
P11D value × BIK percentage rate = taxable benefit
Then: taxable benefit × your marginal tax rate = annual tax payable
The P11D value is the car’s list price (including options and delivery) minus the first year’s Vehicle Excise Duty and the registration fee. It is the manufacturer’s list price, not what your employer actually paid.
BIK Percentage Rates (2025/26)
BIK rates are set by the car’s CO2 emissions:
| CO2 Emissions (g/km) | BIK Rate |
|---|---|
| 0 (pure electric) | 3% |
| 1–50 (depending on electric range) | 3%–12% |
| 51–54 | 13% |
| 55–59 | 14% |
| 60–64 | 15% |
| 65–69 | 16% |
| 100–104 | 24% |
| 130–134 | 29% |
| 150–154 | 33% |
| 170+ | 37% (maximum) |
The maximum BIK rate is capped at 37% regardless of how high the emissions are.
Example: Petrol vs Electric
Petrol car with a P11D value of £35,000 and CO2 of 120 g/km (BIK rate 27%):
- Taxable benefit: £35,000 × 27% = £9,450
- Tax at 40% (Higher Rate): £3,780 per year (£315/month)
Electric car with a P11D value of £35,000 and 0 CO2 (BIK rate 3%):
- Taxable benefit: £35,000 × 3% = £1,050
- Tax at 40%: £420 per year (£35/month)
The electric car saves the Higher Rate taxpayer over £3,300 per year in tax.
Employer National Insurance
Employers also pay Class 1A NI at 15% on the BIK value. For the petrol car above, that is £9,450 × 15% = £1,417.50 per year. For the electric car, it is just £1,050 × 15% = £157.50. This is why many employers actively encourage the switch to electric company cars.
Fuel Benefit
If your employer also pays for your private fuel, there is an additional taxable benefit. For 2025/26, the fuel benefit multiplier is £27,800, applied at the same BIK percentage rate. For the petrol car example: £27,800 × 27% = £7,506 taxable benefit. This charge is so high that unless your private mileage is very substantial, it is usually better to pay for your own fuel and avoid the charge entirely.
Electric cars charged at the workplace are exempt from the fuel benefit charge, and employer-provided charging is not a taxable benefit.
Salary Sacrifice Car Schemes
Many employers now offer cars through salary sacrifice arrangements, where you give up part of your gross salary in exchange for a company car. Combined with the low BIK rates on electric vehicles, this can be a very cost-effective way to drive a new electric car — often cheaper than buying privately.
Key Takeaway
The UK tax system now strongly incentivises electric company cars through BIK rates that are a fraction of those for petrol and diesel vehicles. If you are offered a company car or considering a salary sacrifice scheme, compare the after-tax cost of electric versus combustion options — the savings are substantial.