How company car tax works

Company car tax is a Benefit-in-Kind (BIK) charge: you pay income tax on the value of having a car available for private use. Three things set the amount — the P11D value, the CO2 emissions, and your income tax rate.

1. P11D value

The P11D value is the list price including VAT, delivery and optional extras. You can deduct a one-off capital contribution of up to £5,000 that you pay towards the car.

2. Appropriate percentage (CO2)

For 2026/27 a fully electric car uses 4%. Plug-in hybrids (1-50 g/km) use 4% to 16% depending on electric range. Petrol and diesel cars run from 17% at 51 g/km up to a 37% maximum, rising as CO2 increases.

3. Diesel surcharge

Diesel cars that do not meet the RDE2 (Euro 6d) standard add 4 percentage points, still capped at 37%. Most diesels from 2021 onward are exempt.

4. Your tax rate and fuel benefit

The taxable benefit is multiplied by your income tax rate — 20%, 40% or 45%. If your employer also pays for private fuel, a separate charge of £29,200 times the CO2 percentage applies. Employers pay Class 1A National Insurance at 15% on the benefit.

This is a free, independent guide and estimate, not tax advice. Figures use HMRC company car rules for 2026/27 and income tax rates for England, Wales and Northern Ireland; Scottish taxpayers have different rates. Individual circumstances, availability periods, shared cars and other adjustments can change the result. Check GOV.UK or speak to an accountant for your exact position.

Sources: GOV.UK — Tax on company cars · GOV.UK — Company car appropriate percentages (480: Appendix 2) · GOV.UK — Calculate tax on company cars