Company car tax explained: EV vs petrol BIK
A company car is a taxable perk, and the tax gap between an electric car and a petrol one is enormous. Here's how benefit-in-kind works and why EVs win.
What this assumes
This uses a simplified benefit-in-kind band table and applies your chosen tax band to the taxable benefit. It covers the car benefit only, not any separate fuel benefit, and the exact band for a specific car and year should be confirmed. Plug-in hybrid bands depend on electric-only range; diesel cars that don't meet the RDE2 standard carry a surcharge, which is applied here.
Source: HMRC — tax on company cars
This is an estimate to help you plan, not financial, tax or legal advice.
What benefit-in-kind actually means
A company car you can use privately is treated as a perk with a cash value, and you pay income tax on that value. HMRC sets the value as a percentage of the car’s P11D value, and the percentage is driven by emissions: the cleaner the car, the lower the percentage, the lower the tax. Once you have that taxable benefit, your own tax band decides what you actually pay.
So three things move the number: how expensive the car is, how clean it is, and whether you’re a basic, higher or additional-rate taxpayer.
Why electric cars changed the maths
For years a company car was an expensive perk for higher earners. Electric cars flipped that. Their benefit-in-kind percentage is currently a fraction of a petrol equivalent’s, so the taxable benefit is small even on a pricey car. That’s why so many people now take an electric car through their employer or via salary sacrifice — the tax cost is modest compared with the equivalent in salary.
Petrol, diesel and plug-in hybrids
For petrol and diesel cars, the percentage climbs with CO2 emissions, up to a cap. Diesel cars that don’t meet the RDE2 emissions standard pick up a surcharge, which this calculator adds. Plug-in hybrids are a special case: their band depends on how far they can travel on electric power alone, so a longer electric-only range means a lower tax band. Enter the range for a hybrid to get a realistic figure.
Company car or cash allowance?
Many employers offer a cash allowance instead of a car. Whether the car or the cash works out better depends heavily on the figures above — a clean electric car is often the better deal, while a higher-emission petrol car can make the cash allowance more attractive. Work out the tax here, then compare it against what you’d keep from the cash alternative after tax.
