Company car tax is one of those UK topics where the intuition is completely wrong. People assume a £40,000 company car must cost them thousands more in tax than a £40,000 personal car — sometimes true, sometimes catastrophically wrong. Whether you’ll be better off with a company car depends almost entirely on what fuel type it is and how HMRC has set the BIK band for that car. In 2024/25, an electric company car can cost you £27/month in tax; the equivalent petrol car can cost £440/month. Same list price, sixteen times the tax.
This guide explains exactly how the numbers work, what the 2024/25 rates are, and where the traps are.
The core formula
Every company car tax calculation is the same three-step multiplication:
Annual tax = P11D value × BIK percentage × your marginal income tax rate
- P11D value is the manufacturer’s list price of the car including VAT, delivery and factory-fit optional extras. It ignores any discount you or your employer actually negotiated — HMRC uses list price, not paid price.
- BIK percentage is set by HMRC based on the car’s CO₂ emissions and fuel type. Ranges from 2% (pure electric) to 37% (highest-emission petrol/diesel).
- Marginal income tax rate is 20%, 40% or 45% for England/Wales/NI, or 21%/42%/48% for Scottish intermediate/higher/top.
Your employer also pays Class 1A National Insurance at 13.8% on the same taxable value — that’s their cost, not yours, but it’s what makes very expensive company cars a bad deal for the employer if they’re not electric.
Try it now on the company car tax calculator — swap fuel types on the same £35k car and watch the annual tax swing from £120 (EV) to £3,900 (high-emission petrol).
The 2024/25 BIK bands
For 2024/25 the bands are:
| Fuel type | BIK% |
|---|---|
| Pure electric (BEV) | 2% |
| PHEV, 130+ mile electric range | 2% |
| PHEV, 70–129 mile range | 5% |
| PHEV, 40–69 mile range | 8% |
| PHEV, 30–39 mile range | 12% |
| PHEV, under 30 mile range | 14% |
| Petrol / RDE2 diesel | 15–37% based on CO₂ |
| Non-RDE2 diesel | +4% surcharge, capped at 37% |
For petrol and RDE2 diesel, the percentage starts at 15% for a car emitting 51–54 g/km and rises by roughly 1% for every 5 g/km of extra CO₂, hitting the 37% cap at around 170 g/km.
The EV rate is going up — 2% for 2024/25, then 3% in 2025/26, then 4% in 2026/27. So if you’re going to take an EV via a company car scheme, sooner is materially cheaper than later.
Worked example: petrol vs electric
Let’s take two versions of the same £40,000 executive saloon: one petrol (140 g/km CO₂), one battery electric.
Petrol, 140 g/km, 40% taxpayer:
- BIK% = 33%
- Taxable benefit = £40,000 × 33% = £13,200
- Annual tax = £13,200 × 40% = £5,280
- Monthly PAYE deduction = £440
- Employer’s Class 1A NI = £13,200 × 13.8% = £1,822 on top
Electric, same £40,000, 40% taxpayer:
- BIK% = 2%
- Taxable benefit = £40,000 × 2% = £800
- Annual tax = £800 × 40% = £320
- Monthly PAYE deduction = £27
- Employer’s Class 1A NI = £800 × 13.8% = £110
The electric car costs the driver £413/month less in tax and the employer £1,712/year less in NI. This is why 2020–2024 saw an explosion in company EV schemes — the tax code created a genuine, large arbitrage vs personal ownership of an equivalent car.
Salary sacrifice EVs — the compounding advantage
Most modern company car schemes work via salary sacrifice: you give up a chunk of gross salary in exchange for the car. That saves you income tax AND employee National Insurance on the sacrificed amount, on top of the low BIK on the car itself.
Rough example: sacrifice £600/month of gross salary for a £40k EV. As a higher-rate taxpayer you’d have paid ~40% + 2% = 42% tax and NI on that £600, so the “cost” to your net pay is only ~£348/month. But you’re driving a £40k EV, all-in including insurance and maintenance in most schemes. Compare that to leasing an equivalent EV yourself for £500+/month out of net income. The gap is often £300–£400/month.
The fuel benefit trap
If your employer pays for your private fuel — including your commute — that’s a separate taxable benefit called the car fuel benefit charge. For 2024/25 it’s calculated as:
Fuel benefit = £27,800 × BIK% × your marginal rate
For our 33% petrol car / 40% payer example: £27,800 × 33% × 40% = £3,670/year of extra tax just for having private fuel paid.
This is almost always a bad deal unless you do genuinely huge private mileage. Do the maths: £3,670 buys you roughly 2,300 litres of petrol at £1.60/litre. That’s about 15,000 miles at 30 mpg. If you’re doing less private mileage than that, you’re actively worse off with employer-paid private fuel and should pay for your own, then claim business mileage back at HMRC’s Approved Mileage Allowance Payments (45p per mile for the first 10,000 business miles per year).
Diesel — read the V5C
Diesel cars pay a 4% BIK supplement on top of the standard petrol rate — unless they’re certified to the RDE2 (Real Driving Emissions step 2) standard. Basically every diesel launched since 2018 is RDE2, but some fleet stock is older. Check the car’s V5C log book to confirm. On a car sitting at 25% base BIK, that 4% is £1,000/year of extra tax for a higher-rate driver — worth checking.
Scottish taxpayers
If you’re taxed under the Scottish rates, your marginal rate on non-savings income (which includes company car BIK) is 20%, 21%, 42%, 45% or 48% depending on the band. The BIK percentage is the same across the UK — only your marginal rate changes. Higher-earning Scottish drivers pay slightly more BIK tax than English/Welsh/NI equivalents at the same headline salary.
What isn’t included in the tax
A few things you might expect to be taxable that aren’t:
- Workplace charging for an electric company car is tax-free — including at your home if the employer provides the charger.
- Vehicle excise duty (road tax) — paid by the employer, no BIK.
- Insurance — employer’s, no BIK.
- Servicing and maintenance — employer’s, no BIK.
Basically only the private use of the car itself (via BIK) and private fuel (via the separate fuel benefit) create a personal tax cost.
The bottom line
For 2024/25 there are essentially two categories of company car:
- Anything electric — genuinely one of the best perks in the UK tax code. Take it if offered, especially via salary sacrifice.
- Anything not electric — think carefully. Once BIK exceeds ~25% you’re often better off with a personal car and a mileage allowance for business trips. The break-even depends on your marginal rate, your mileage, and whether the employer is subsidising the car heavily.
The company car tax calculator does the exact numbers for your situation in seconds.
Rates and thresholds accurate for 2024/25 UK tax year. Not tax advice — check with your payroll or accountant before making decisions.