Company car tax rules change regularly, and for many drivers, understanding Benefit-in-Kind (BiK) tax can feel confusing. Whether you already have a company car or you’re choosing your next one, understanding how tax rates work can help you make a smarter financial decision.
Company cars remain hugely popular in the UK, especially with businesses running fleets and employees looking for affordable motoring options through salary packages.
For a clearer picture of how Benefit‑in‑Kind bands and emissions ratings affect what your company car is actually worth, our car valuation guidance hub.
What Is Company Car Tax?
Company car tax, also known as Benefit-in-Kind (BiK) tax, is the tax employees pay when they use a company car for personal use.
The amount you pay depends on several factors, including:
- Your income tax bracket
- The car’s P11D value
- CO2 emissions
- Fuel type
- Whether the vehicle is electric, hybrid, petrol, or diesel
Generally speaking, the lower the emissions, the lower the tax bill.
What Changed for 2021/2022?
The Government introduced several updates to encourage drivers and businesses to switch to lower-emission vehicles.
Key changes included:
- Fully electric company cars were taxed at just 1% BiK in 2021/22
- Electric vehicle rates were set to rise gradually to 2% by 2022/23
- Vehicles registered before April 6th 2020 largely remained frozen at previous tax rates
- Many lower-emission vehicles benefited from reduced company car tax percentages
These changes made electric company cars far more attractive financially than traditional petrol or diesel alternatives.
If you’re considering switching to an EV, you may also want to read our guide on charging costs vs petrol costs:
Does Charging Your Car Cost Less Than Buying Petrol?
How Is Company Car Tax Calculated?
Company car tax is calculated using a simple formula:
P11D value × BiK percentage × income tax band
Your tax band will usually be:
- 20% (basic rate taxpayer)
- 40% (higher rate taxpayer)
The higher your vehicle’s emissions and value, the more tax you’ll typically pay.
What Is the P11D Value?
The P11D value is essentially the list price of the car as recognised by HMRC.
This includes:
- VAT
- Delivery charges
- Factory-fitted extras
It does not include:
- First registration fee
- Vehicle tax
The higher the P11D value, the higher the potential company car tax bill.
Are Electric Company Cars Worth It?
For many drivers, electric company cars became one of the most tax-efficient motoring options available during 2021/22.
Benefits often included:
- Lower BiK tax rates
- Reduced fuel costs
- Lower maintenance costs
- Exemption from some congestion and emissions charges
If you’re thinking about making the switch, you might also find our article on EV charging infrastructure useful:
Can We Use the Excuse That There Aren’t Enough Car Chargers Any More?
Looking for Your Next Company Car?
Choosing the right company car isn’t just about tax — it’s also about practicality, running costs, and long-term value.
If you need to sell your current car before upgrading, Jamjar can help you compare offers from trusted UK buyers quickly and easily.
Get a free online valuation today and see how much your car could be worth.