Company Car Tax 2026/27: BIK Calculator, CO2 Bands and P11D Explained

A company car is a valuable benefit -- but it comes with a significant tax charge. The "benefit-in-kind" (BIK) tax is calculated based on the car's list price, CO2 emissions, and your marginal tax rate, and it can add hundreds or even thousands of pounds to your annual tax bill. This guide explains how company car tax works in 2026/27, how to calculate it, and whether opting out might save money.

What is Benefit-in-Kind (BIK)?

Benefit-in-kind is the taxable value of any non-cash benefit your employer provides. For company cars, HMRC uses a formula called the "P11D basis" to assess the value:

BIK = List Price × CO2 Percentage × Tax Year

The "CO2 percentage" is the key variable -- it depends on the car's emissions and whether it's petrol, diesel, hybrid, or electric. This percentage is applied to the car's list price, and the resulting figure is added to your employment income for tax purposes.

How CO2 Percentages Work in 2026/27

HMRC publishes a table of CO2 bands and corresponding percentages each tax year. For 2026/27, the key rates are:

The percentages increase in 1% increments up to a cap of 37% for very high-emission vehicles. The 2% entry-level rate applies to zero-emission (fully electric) vehicles and ultra-low-emission hybrids under 50g/km.

Electric Vehicle Rates and Phase-In

One of the biggest changes in recent years is the introduction of special rates for electric vehicles. From April 2026 to March 2027, fully electric cars are charged at just 2% BIK, compared to 4-10% for equivalent petrol cars.

However, the EV advantage is being gradually withdrawn. The rates are:

• April 2026 -- March 2027: 2%
• April 2027 -- March 2028: 3%
• April 2028 -- March 2029: 4%
• April 2029 -- March 2030: 5%

By 2030, EVs will reach the 5% rate. This means the tax advantage of choosing an electric vehicle over a petrol equivalent diminishes each year. If you're considering a company car choice now, the timing matters -- an EV chosen in April 2026 will be cheaper for the first few years of ownership.

Worked Example: Petrol vs Electric Car BIK

Let's compare two cars: a petrol BMW X3 and an electric Tesla Model 3. Both have a list price of GBP 50,000.

Petrol BMW X3 (180 g/km CO2):

• BIK = GBP 50,000 × 8% = GBP 4,000/year
• If you're a higher rate (40%) taxpayer: GBP 4,000 × 40% = GBP 1,600 tax cost/year

Electric Tesla Model 3 (0 g/km CO2, April 2026):

• BIK = GBP 50,000 × 2% = GBP 1,000/year
• If you're a higher rate (40%) taxpayer: GBP 1,000 × 40% = GBP 400 tax cost/year

The annual tax saving by choosing the EV is GBP 1,200. Over a typical 3-year company car cycle, that's GBP 3,600 in tax savings. However, once the EV rate rises to 3% in April 2027, the gap narrows slightly, and by 2029, it narrows further.

P11D Reporting and the 6 July Deadline

Company car BIK is reported by your employer on form P11D, which HMRC uses to assess your tax liability. The P11D must be submitted by 6 July following the end of the tax year (so for the 2026/27 tax year, it's due by 6 July 2027).

The car details on the P11D include:

• Vehicle make and model
• Engine size (for petrol/diesel) or fuel type (EV, hybrid, petrol)
• CO2 emissions (in g/km)
• List price (the manufacturer's recommended retail price when new)
• Registration number and date first registered
• Any capital contributions you made toward the car

If your employer uses the payroll system to "payroll" the BIK value (which is common), they may not need to file a P11D if the amount is correctly processed through your monthly PAYE. However, many employers file it anyway for clarity.

What is "List Price"?

The P11D list price is the manufacturer's recommended retail price (MRRP) of the car when new, including any standard accessories but excluding special options you chose. If your employer funded any customisations (leather seats, roof rails, upgraded infotainment), these can be added to the list price, increasing your BIK.

For second-hand cars provided by your employer, HMRC uses the market value at the time you first had use of it, not what your employer paid for it. This can sometimes work in your favour if your employer bought a used car at a discount.

Can You Opt Out of a Company Car?

Yes. If your employer allows it, you can decline the company car and take a salary increase instead. Many employees are now doing this, especially higher-rate taxpayers, because the tax cost of a car can outweigh the benefit.

Should you opt out? Consider:

• The tax cost: Multiply your BIK value by your marginal tax rate. If it exceeds GBP 1,500-2,000/year, opting out might be wise.
• Salary alternative: Is your employer offering enough additional salary to cover your own car, fuel, and insurance? Typically, this should be at least GBP 3,000-4,000/year more.
• Convenience: A company car often includes servicing, roadside cover, and replacement vehicle when yours is in the workshop. Private ownership means you cover all these costs.
• Mileage: If you drive 20,000+ miles per year, a company car (with employer fuel) is often cheaper than owning privately.

The break-even point is roughly when your private car costs (loan, insurance, fuel, servicing) plus lost salary increase exceed the GBP 1,000-2,000 tax saving.

Fuel Benefits

If your employer provides fuel for private use, this is a separate BIK charge. The fuel benefit charge for 2026/27 is GBP 27,700, regardless of how much fuel you actually consume. This is added to your employment income and taxed at your marginal rate.

For a 40% higher-rate taxpayer, this means GBP 11,080 tax per year just for fuel benefits -- often more expensive than the car itself. Many employees with company cars ask their employer to remove fuel benefits to avoid this charge and instead claim an allowance to cover fuel themselves.

National Insurance on Company Car BIK

Company car BIK does NOT attract National Insurance contributions. The BIK value is added to your taxable income for income tax purposes only. This is one advantage over a salary increase of the same value -- a GBP 4,000 BIK costs GBP 1,600 in 40% tax, but a GBP 4,000 salary increase costs GBP 1,600 in 40% income tax plus approximately GBP 500 in 8% National Insurance, totalling GBP 2,100.

Using Your Personal Tax Account to Check BIK

At the end of the tax year, your Personal Tax Account will show the BIK value your employer reported. You can:

1. Log into gov.uk and access your Personal Tax Account.
2. View the current tax year (2025/26) or the previous tax year (2024/25).
3. Look for "Employment" or "P11D" data.
4. Check the vehicle details and BIK value listed.
5. If anything is wrong, contact your employer's payroll team -- they have until 6 July to correct the P11D.

Opting Out: Salary Increase Calculation

If you opt out and negotiate a salary increase, here's how to value it:

1. Calculate your current BIK tax cost: BIK value × your marginal tax rate.
2. Add an amount for lost NI (your employee NI is 8% on earnings between GBP 12,570 and GBP 50,270, and 2% above).
3. Subtract any annual fuel allowance your employer provided (usually GBP 1,000-1,500).
4. Request a salary increase of at least 1.5 to 2 times your current car tax cost to break even.

Example: If your BIK costs GBP 2,000 in tax (40% on GBP 5,000), plus GBP 400 in NI (8% on GBP 5,000), you're losing GBP 2,400 of benefit annually. You'd want to negotiate a salary increase of at least GBP 4,500-5,000 to justify opting out.

Key Takeaways

• Company car BIK = List Price × CO2% × Marginal Tax Rate. For a GBP 50,000 petrol car (8% CO2), a 40% taxpayer pays GBP 1,600/year in tax.
• Electric vehicles are charged at just 2% in 2026/27, rising to 3%, 4%, and 5% by 2030 -- choose an EV now to lock in lower rates for the first few years.
• P11D forms are due by 6 July after the tax year ends -- check yours matches your employer's data.
• Opting out can save money if the tax cost exceeds your private car costs, especially if you drive low mileage.
• Fuel benefits (GBP 27,700) are often more expensive than the car itself -- ask your employer to remove this and take a fuel allowance instead.

The key is understanding your personal situation: do you drive a lot, is a company car more convenient than private ownership, and most importantly, what's the total tax cost to you? Use this knowledge to negotiate the best remuneration package in your 2026/27 salary review.