Benefit in Kind (BIK) tax is a crucial consideration for anyone with a company car. Understanding how it works can help you make informed decisions and potentially save thousands of pounds annually.
What is BIK Tax?
Benefit in Kind tax is charged on employees who receive benefits from their employer in addition to their salary. For company cars, the taxable amount is based on:
- The car's P11D value (list price including VAT)
- The car's CO2 emissions - Your income tax rate
The HMRC calculates your BiK tax using this formula:
BIK Tax = P11D Value × BIK Rate × Income Tax Rate
2025 BIK Rates by Vehicle Type
Electric Vehicles
- 2024/25: 2%
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
Electric vehicles continue to enjoy the lowest BIK rates, making them extremely tax-efficient choices for company cars.
Hybrid Vehicles
Plug-in hybrid vehicles (PHEVs) have variable rates depending on their electric range:
- 0-30 miles: 5-14%
- 30-39 miles: 5-10%
- 40-69 miles: 3-8% - 70+ miles: 3-5%
The greater the electric range, the lower the BIK rate.
Petrol and Diesel Vehicles
Conventional vehicles face significantly higher BIK rates based on CO2 emissions:
- 1-50 g/km: 14-15%
- 51-75 g/km: 16-19%
- 76-94 g/km: 20-23%
- 95+ g/km: 24-37%
Why Electric Vehicles Are Different
The government deliberately set lower BIK rates for electric vehicles to encourage adoption and reduce emissions. The difference is stark:
Example Comparison:
Let's compare two similar cars for a higher-rate taxpayer (40%):
Electric: Tesla Model 3 (£45,000) - BIK Rate: 2%
- Annual Tax: £360
Petrol: BMW 330i (£45,000, 140g/km CO2)
- BIK Rate: 32%
- Annual Tax: £5,760
The electric vehicle saves £5,400 per year in BIK tax alone!
How to Calculate Your BIK Tax
- Find Your P11D Value: This is the car's list price including VAT and any factory-fitted accessories
- Determine the BIK Rate: Based on fuel type and CO2 emissions
- Apply Your Tax Rate: 20%, 40%, or 45% depending on your income
- Calculate Annual Tax: P11D × BIK Rate × Tax Rate
Or use our online calculator for instant results!
BIK and Salary Sacrifice
When you take a company car through salary sacrifice, your gross salary is reduced by the lease cost. This creates a double benefit:
- You pay less income tax on your reduced salary
- The BIK tax on the car benefit is low (especially for EVs)
The net effect is that your actual cost is often 40-50% less than the lease value, depending on your tax bracket.
Future Changes
The government has announced that BIK rates for electric vehicles will remain below 5% through 2028. This provides certainty for employees considering salary sacrifice schemes and confirms the long-term tax advantages of electric company cars.
Diesel Supplement
It's worth noting that most diesel cars (except those meeting RDE2 standards) face a 4% diesel supplement on their BIK rate. This further increases the cost of choosing a diesel company car.
Company Car Fuel Benefit
If your employer also pays for your personal fuel use, there's an additional fuel benefit charge. For 2024/25, this is based on a £27,800 multiplier. However, this doesn't apply to electric vehicles charging at work, making EVs even more attractive.
Making the Right Choice
When selecting a company car, consider:
- Your annual mileage
- The length of your commute
- Available charging infrastructure
- Your income tax bracket
- The total cost including BIK tax
For most employees, especially higher-rate taxpayers, an electric vehicle will be the most cost-effective choice in 2025.
Conclusion
Understanding BIK rates is essential for maximizing the value of your company car benefit. With electric vehicles offering BIK rates of just 2-5% through 2028, there's never been a better time to make the switch to electric.
