Benefit-in-Kind (BiK) Explained for Company Cars in 2026

If your employer provides you with a company car that you can use privately, you will usually pay Benefit-in-Kind (BiK) tax.

The amount of company car tax you pay depends mainly on the vehicle's P11D value, CO₂ emissions, fuel type and your Income Tax rate. For the 2026/27 tax year, fully electric company cars have a BiK rate of 4%, while higher-emission cars can have rates of up to 37%.

This guide explains how BiK works, how company car tax is calculated and what the 2026/27 rates mean if you're considering a company car.

Last reviewed: August 2026

What is Benefit-in-Kind (BiK)?

Benefit-in-Kind is tax on certain benefits provided by an employer, including a company car that is available for private use.

HMRC normally considers private use to include commuting between home and your normal workplace.

You do not pay tax on the full value of the car. Instead, HMRC calculates a taxable benefit using the vehicle's value and its appropriate BiK percentage.

In simple terms:

P11D value × BiK percentage = taxable benefit

You then pay Income Tax on that taxable benefit at your applicable tax rate.

If you're considering a company car, our business car leasing options provide access to a range of vehicles through fixed monthly rentals.

How is company car tax calculated?

Three figures are particularly important when working out company car tax:

• P11D value: the vehicle's taxable list price
• BiK percentage: determined mainly by the car's CO₂ emissions and fuel type
• Income Tax rate: the rate at which you pay tax

Example

If a company car has a P11D value of £40,000 and a BiK rate of 4%:

£40,000 × 4% = £1,600 taxable benefit

A basic-rate taxpayer paying 20% Income Tax would therefore pay:

£1,600 × 20% = £320 a year

That's approximately £26.67 a month.

The actual amount you pay can vary depending on your circumstances.

What is the P11D value?

The P11D value is broadly the manufacturer's list price of the car, including VAT and relevant taxable accessories.

It is not the same as the monthly lease payment.

This is important when comparing company cars because two vehicles with similar monthly lease costs can have very different BiK liabilities.

Optional extras can also increase the vehicle's taxable value.

What are the company car BiK rates for 2026/27?

The 2026/27 tax year runs from 6 April 2026 to 5 April 2027.

HMRC sets the appropriate percentage used to calculate company car benefits. For 2026/27, the BiK rate for zero-emission cars is 4%. Plug-in hybrids producing 1–50g/km have rates between 4% and 16%, depending on their electric-only range. Higher-emission cars can have rates of up to 37%.

2026/27 company car BiK rates

* For cars producing 1–50g/km, the BiK rate depends on the vehicle's official electric-only range.

Important: BiK rates and company car tax rules can change. The rates shown are for the 2026/27 tax year and are provided for general information only. Your actual tax liability will depend on your individual circumstances and the vehicle provided.

For the latest information, see the HMRC company car BiK guidance.

What is the BiK rate for electric company cars in 2026?

The BiK rate for a fully electric company car is 4% for the 2026/27 tax year.

This is considerably lower than the rates that apply to many petrol and diesel company cars.

For example, a £40,000 electric company car with a 4% BiK rate would have a taxable benefit of £1,600. A £40,000 company car with a 30% BiK rate would have a taxable benefit of £12,000.

The amount of Income Tax you pay on those benefits depends on your tax rate.

This is one reason electric vehicles can be attractive as company cars. If you're considering an electric company car, you can explore our electric car leasing options.

How does BiK work for hybrid company cars?

Plug-in hybrid company cars are also subject to BiK tax.

For cars producing between 1g/km and 50g/km, the appropriate percentage depends on the vehicle's electric-only range. A longer electric range can result in a lower BiK rate.

If you're comparing plug-in hybrid company cars, it's therefore worth checking both the vehicle's CO₂ emissions and its official electric-only range.

Do company directors pay BiK tax?

Yes. Company directors can be liable for BiK tax when their company provides a car that is available for private use.

The same basic calculation applies:

P11D value × BiK percentage = taxable benefit

The director then pays Income Tax on that benefit according to their tax position.

Do you pay BiK tax on a company car used for commuting?

Generally, yes.

HMRC normally treats journeys between home and your normal workplace as private use.

There are specific rules and exemptions for certain vehicles and circumstances, so the tax treatment can depend on how the car is provided and used.

For the latest information, see HMRC's guidance on company car tax.

Does the monthly lease price affect BiK?

No. BiK tax is not calculated from the monthly lease payment.

The company car calculation is based on the vehicle's taxable value and the appropriate BiK percentage.

This means you should consider both the cost of leasing the vehicle and the potential BiK liability when comparing company cars.

For example, a car with a slightly higher monthly rental could have a lower BiK liability if it has a lower BiK percentage.

Many company cars are provided through Business Contract Hire, which allows a business to use a vehicle for an agreed period in return for monthly rentals without owning the vehicle.

What about private fuel?

If your employer provides fuel for private use in a company car, you may also have to pay tax on a separate Fuel Benefit.

This is calculated separately from the company car benefit.

The rules differ depending on the type of vehicle, so check the latest HMRC guidance if your employer provides private fuel.

How can I find out how much company car tax I will pay?

You'll need:

• The vehicle's P11D value
• Its CO₂ emissions
• Its fuel type
• Your Income Tax rate
• The applicable BiK percentage for the tax year

You can then use the HMRC company car and fuel benefit calculator to estimate your tax liability.

Find quick answers to common questions about company car BiK tax, rates, calculations and electric vehicles.