Company Car Tax Bands 2026/27: How Benefit-in-Kind Is Actually Calculated
Company car tax depends on the car's list price, its CO2 emissions band, and your own Income Tax rate. Here's exactly how the benefit-in-kind charge is worked out for 2026/27, with petrol, hybrid and electric examples.
The Calculation, Step by Step
Company car benefit-in-kind guide- Find the car's P11D value (list price including VAT and most standard/optional extras).
- Find the BIK percentage for the car's CO2 emissions band (and electric range, for hybrids).
- Multiply: P11D value × BIK percentage = the cash equivalent benefit.
- Multiply the cash equivalent by your own Income Tax rate (20%, 40% or 45%) to get your actual annual tax bill.
Worked Examples
| Car type | P11D value | BIK % (illustrative band) | Cash equivalent | Tax at 20% | Tax at 40% |
|---|---|---|---|---|---|
| Electric car | £35,000 | 3% | £1,050 | £210/yr | £420/yr |
| Petrol/hybrid, mid CO2 | £30,000 | 25% | £7,500 | £1,500/yr | £3,000/yr |
| Petrol, higher CO2 | £40,000 | 37% (top band) | £14,800 | £2,960/yr | £5,920/yr |
These figures are illustrative of the mechanism — always check the exact BIK percentage for a specific car's CO2 emissions and electric range using the current HMRC company car tax tables, since bands are set per gram of CO2/km and can shift between tax years.
Employer vs Employee: Who Pays What
| Employee | Employer | |
|---|---|---|
| Income Tax on cash equivalent | Yes, at 20%/40%/45% | No |
| National Insurance on cash equivalent | No | Yes, Class 1A NIC |
| Reporting | Via tax code adjustment or Self Assessment | Via P11D and P11D(b) |
Company Car vs Cash Allowance
| Factor | Favours keeping the car | Favours cash allowance |
|---|---|---|
| Low-CO2/electric vehicle | Yes — very tax-efficient | — |
| High list price, high CO2 | — | Yes — BIK charge can be substantial |
| Employer covers insurance/servicing/depreciation | Yes | — |
| You'd want a cheaper car privately anyway | — | Yes — cash may go further |
There's no universal answer — the comparison depends entirely on the specific car on offer and your own tax position, so it's worth running the actual figures for your situation before choosing either option.
Practical Tips
- Check your specific car's exact BIK percentage against the current HMRC tables — don't rely on rough estimates for an actual decision.
- Remember the P11D value includes most factory-fitted options, which can push a car into a materially higher cash-equivalent figure than the base model price suggests.
- If choosing between company cars, an electric or very low-CO2 option is very likely the most tax-efficient choice under current rules.
- Revisit the comparison at each lease renewal, since BIK percentages for combustion-engine bands have generally been rising over recent tax years.
Frequently asked questions
Related reading
Autumn Budget 2025: Full Take-Home Pay Impact Breakdown
How the October 2025 Budget changes to employer NI, the NLW rise, and frozen thresholds affect take-home pay across every salary band.
Your First Job After University: Tax, NI and Student Loan in 2026
Emergency tax codes, Plan 5 student loan repayments, auto-enrolment, and a worked example of a £26,000 graduate salary take-home calculation.
High Income Child Benefit Charge 2026/27: Who Pays, How Much, and How to Avoid It
The HICBC reformed in April 2024: new £60k threshold, household income basis, taper to £80k. Pension salary sacrifice strategy and a worked example.