Every employee with a company car pays benefit in kind (BIK) tax. The amount depends on the car’s list price, its CO2 emissions, and your income tax rate. For 2026/27, HMRC has updated several key figures: the electric vehicle rate rises to 4 per cent, the fuel benefit charge multiplier increases to £29,200, and employer Class 1A NIC remains at 15 per cent. This guide walks you through the full calculation, the updated rate table, and worked examples so you know exactly what your company car will cost.
How the BIK Formula Works
Your annual company car BIK tax liability comes from three inputs multiplied together:
P11D value — the manufacturer’s list price including standard accessories, optional extras, and VAT, but excluding the first registration fee and vehicle excise duty. This is the list price, not the discounted price your employer may have negotiated.
Appropriate percentage — the BIK rate set by HMRC based on your car’s CO2 emissions (and electric range for plug-in hybrids). See the table below.
Your marginal tax rate — 20 per cent (basic rate), 40 per cent (higher rate), or 45 per cent (additional rate).
The formula is straightforward:
Annual BIK tax = P11D value x BIK percentage x income tax rate
For example, a car with a P11D value of £40,000, a BIK rate of 25 per cent, and a higher-rate taxpayer paying 40 per cent would produce: £40,000 x 25% x 40% = £4,000 per year in BIK tax.
2026/27 BIK Rate Table by CO2 Emissions
The table below shows the appropriate BIK percentages for the 2026/27 tax year. Rates for zero and ultra-low emission vehicles have increased by one percentage point compared with 2025/26, while bands from 75 g/km upward remain frozen.
| CO2 emissions (g/km) | Electric range (miles) | BIK % 2026/27 |
|---|---|---|
| 0 (pure electric) | n/a | 4% |
| 1–50 | 130 or more | 4% |
| 1–50 | 70–129 | 7% |
| 1–50 | 40–69 | 10% |
| 1–50 | 30–39 | 14% |
| 1–50 | Under 30 | 16% |
| 51–54 | n/a | 17% |
| 55–59 | n/a | 18% |
| 60–64 | n/a | 19% |
| 65–69 | n/a | 20% |
| 70–74 | n/a | 21% |
| 75–79 | n/a | 21% |
| 80–84 | n/a | 22% |
| 85–89 | n/a | 23% |
| 90–94 | n/a | 24% |
| 95–99 | n/a | 25% |
| 100–109 | n/a | 26–27% |
| 110–119 | n/a | 28–29% |
| 120–129 | n/a | 30–31% |
| 130–139 | n/a | 32–33% |
| 140–149 | n/a | 34–35% |
| 150–154 | n/a | 36% |
| 155 and above | n/a | 37% (maximum) |
Diesel supplement: Non-RDE2 diesel cars add 4 percentage points to these rates. However, the total BIK percentage cannot exceed 37 per cent. Most modern diesels registered after September 2019 meet the RDE2 standard and are exempt from the supplement.
Worked Examples: EV, Hybrid, and Petrol
Electric Vehicle at 4 Per Cent
Car: Tesla Model 3, P11D value £42,000, CO2 0 g/km
- BIK percentage: 4%
- Taxable benefit: £42,000 x 4% = £1,680
- Tax at 20% (basic rate): £1,680 x 20% = £336 per year (£28 per month)
- Tax at 40% (higher rate): £1,680 x 40% = £672 per year (£56 per month)
Even at the higher rate, an electric company car costing over £40,000 generates less than £60 per month in BIK tax. For a full breakdown of electric vehicle company car tax, see our electric company car tax guide.
Plug-in Hybrid at 10 Per Cent
Car: BMW 330e, P11D value £44,000, CO2 30 g/km, electric range 54 miles
- BIK percentage: 10% (1–50 g/km band, 40–69 mile electric range)
- Taxable benefit: £44,000 x 10% = £4,400
- Tax at 40% (higher rate): £4,400 x 40% = £1,760 per year (£147 per month)
The plug-in hybrid sits between the pure EV and a conventional petrol car. Choosing a PHEV with a longer electric range (70 miles or more) would bring the rate down to 7 per cent, saving £528 per year for a higher-rate taxpayer on this P11D value.
Petrol Car at 31 Per Cent
Car: BMW 3 Series 320i, P11D value £39,500, CO2 125 g/km
- BIK percentage: 31% (120–129 g/km band)
- Taxable benefit: £39,500 x 31% = £12,245
- Tax at 40% (higher rate): £12,245 x 40% = £4,898 per year (£408 per month)
Compare this with the electric example above: the petrol car costs £4,226 more per year in BIK tax for a higher-rate taxpayer on a similar-value vehicle. Over a typical four-year company car cycle, that difference amounts to nearly £17,000 in income tax alone.
Employer Class 1A NIC and the Fuel Benefit Charge
BIK does not only affect the employee. Your employer pays Class 1A National Insurance Contributions at 15 per cent on the full BIK amount. Using the petrol example above:
- BIK amount: £12,245
- Employer Class 1A NIC: £12,245 x 15% = £1,837 per year
For the electric car, the employer’s NIC cost drops to just £1,680 x 15% = £252 per year — a saving of over £1,500 annually. This is a significant reason many fleet operators are shifting towards electric vehicles.
Fuel Benefit Charge 2026/27
If your employer provides free fuel for private mileage in your company car, you face an additional BIK charge: the fuel benefit. For 2026/27, the fixed multiplier is £29,200.
The calculation is: £29,200 x your car’s BIK percentage x your tax rate.
For the petrol car above (31% BIK): £29,200 x 31% x 40% = £3,621 per year in additional tax, regardless of how little private fuel you actually use. In most cases, paying for your own private fuel is far cheaper. For a detailed analysis, see our fuel benefit charge guide.
Strategies to Reduce Your Company Car BIK
There are several practical ways to lower your BIK liability:
Switch to an EV or long-range PHEV. At 4 per cent, an electric company car is dramatically cheaper than anything with an internal combustion engine. Salary sacrifice schemes make this even more attractive — see our salary sacrifice vs buying guide.
Decline free private fuel. The fuel benefit charge is calculated on a flat multiplier regardless of how many private miles you drive. Unless you cover very high private mileage, you will save money by paying for fuel yourself.
Consider a car allowance. If your private mileage is low, taking a car allowance and claiming business mileage at HMRC’s approved rates (currently 45p per mile for the first 10,000 miles) may work out cheaper. Our company car vs car allowance calculator can help you compare the two options.
Track your business mileage. Whether you have a company car or receive a car allowance, keeping an accurate mileage log supports your tax position. Tripbook automatically records every journey via GPS, making it straightforward to separate business and private miles. If you switch to a car allowance, Tripbook generates HMRC-ready reports for your mileage claims.
Download Tripbook from the App Store and start logging your business journeys automatically.
Key Takeaways
The 2026/27 BIK system continues to reward low-emission vehicles. A pure electric car at 4 per cent BIK costs a higher-rate taxpayer under £700 per year on a £42,000 vehicle, while a comparable petrol car at 31 per cent costs nearly £5,000. The fuel benefit charge multiplier has risen to £29,200, making free private fuel an even worse deal for most employees. Employer Class 1A NIC at 15 per cent means the cost saving from EVs extends to the business as well.
For full company car tax rates including future years and Class 1A NIC planning, see our company car tax 2026 guide. If you are reporting benefits for your employees, our P11D reporting guide covers the filing process.
