If your employer provides you with a company car that you can use for personal journeys, you pay benefit in kind (BIK) tax on it. The amount depends on the car's P11D value, its CO2 emissions, and your income tax rate.
The formula is: P11D value x BIK percentage x your tax rate = annual tax.
P11D value is the list price of the car including options and accessories, minus the first year registration fee. The BIK percentage depends on CO2 emissions and fuel type.
For 2025/26, BIK rates range from 2% for zero emission electric vehicles to 37% for the highest emission cars. Here are some key rates:
Electric vehicles (0g/km CO2): 2% Plug-in hybrids (1-50g/km): 2% to 14% depending on electric range Petrol/diesel (100g/km): 22% Petrol/diesel (150g/km): 37%
Example: a BMW 3 Series with a P11D value of £40,000 and CO2 emissions of 130g/km has a BIK rate of about 33%. A basic rate taxpayer would pay £40,000 x 33% x 20% = £2,640 per year. A higher rate taxpayer pays £5,280.
Compare this with a Tesla Model 3 (P11D value £45,000, 0g/km CO2): a basic rate taxpayer pays £45,000 x 2% x 20% = £180 per year. The electric car costs £2,460 less per year in tax despite having a higher list price.
This is why electric company cars have become incredibly popular. The 2% BIK rate for electric vehicles is fixed until at least 2025, after which it increases to 3% in 2025/26, 4% in 2026/27, and 5% in 2027/28. Even at 5%, the tax advantage over petrol cars is enormous.
Your employer also pays Class 1A NI at 13.8% on the BIK value. For the BMW, that is £1,822. For the Tesla, it is £124. This saving often motivates employers to encourage electric car choices.
Use our take-home pay calculator to see the impact on your net salary.