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Company car tax 2024: Benefit-in-Kind rates explained

Everything you need to know about company cars, Benefit-in-Kind and how company-car tax is calculated

company car

There are few workplace benefits better than a company car. Also known as fleet vehicles, company cars are provided by your employer, with them often picking up the tab for maintenance and insurance costs, too. That’s not to say that company cars are free, however, as you’ll instead have to pay Benefit-in-Kind (BiK), which is more commonly referred to as company car tax.

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HMRC views company cars as a taxable benefit and the amount of tax you pay depends on several factors, including the purchase price of the car, how much CO2 it emits and how much you earn. While there’s no way to avoid paying company car tax, choosing the right car will result in a lower tax burden, so it’s important to understand the system to avoid making an expensive mistake.

The best company cars heroThe best company cars 2024

The tax rates have changed in recent years as part of an initiative to encourage company-car buyers to choose lower-emitting vehicles, such as electric and plug-in hybrid cars, and as a result, models with low CO2 emissions fall into lower tax bands. No matter how much you earn or how expensive the car is, zero-emission cars will almost always offer the most affordable deal. 

The flip side of the coin is that high earners driving an expensive car with a high CO2 emissions figure pay the most. NOx (nitrogen oxide) emissions are also penalised, with some diesel cars paying an additional 4% tax surcharge compared with their petrol counterparts, if they don’t meet certain emissions criteria.

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Once you have made your choice, the tax contributions will come straight out of your payslip. Company car tax rates are usually adjusted every April, but the current rates are frozen until April 2025.

How does company-car tax work?

2020 Jaguar I-Pace - rear dynamic view

In the eyes of HMRC, private use of a company car (that includes commuting) is a perk, and it is classed as a Benefit-in-Kind (BiK). This effectively means that you’re receiving a financial benefit from your employer that isn’t part of your salary, and HMRC, therefore, taxes it separately (although it’s still deducted from your monthly pay ‘at source’).

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In order to calculate how much company car tax you must pay per year, HMRC uses three figures:

  • The ‘P11D’ value of your car – this is its list price, cost of delivery, VAT and optional extras (excluding road tax or first-year registration).
  • The car’s Benefit-in-Kind (BiK) rate – based on CO2 emissions, current rates range from 2% to 37%.
  • Your income tax band.

HMRC takes the P11D value of your car and multiplies it by its BiK rate. The result of this calculation gives HMRC a cash value of the ‘Benefit-in-Kind’ you are receiving from your employer. This value is then taxed according to your income tax band, which may be 0%, 20%, 40% or 45% for the highest earners (this differs in Scotland, where there is a wider range of rates from 19% to 46%.)

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Originally BiK percentage bands were based on company-car values, so the more expensive a model was, the more you were taxed on it. Nowadays, however, BiK rates are calculated in relation to a company car’s CO2 emissions, so the lowest polluting cars attract less tax, relative to more polluting ones of similar P11D value. This is part of the government’s drive to encourage motorists to switch to greener cars.

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As of 2024, all fully electric cars are eligible for a 2% BiK rate, and this is set to stay the same until it changes in April 2025 (when it goes up to 3%, increasing a percentage point each year from then). This is a huge subsidy and employees can save thousands of pounds annually when their employers offer EVs as company cars.

BiK percentage bands are adjusted every financial year (this runs from 6 April to 5 April the year after), and the banding figures usually increase year on year, however, the rates are to remain fixed for the 2024 to 2025 tax year. 

Company car tax calculator: example 1 – petrol car

BMW 3 Series

P11D value(£s) x BiK rate(%) x Income Tax Band (%) = Annual tax payable

For any make, model and type of car, the above calculation is applied. As an example, let’s take a petrol BMW 3 Series saloon that has a P11D value of £40,545 and falls into the BiK band of 34% due to CO2 emissions of 147g/km of CO2. The BiK value of the car for company car tax purposes is £13,785 (34% of £40,545).

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If you live in England or Wales, the amount of company car tax you pay depends on whether you’re a 20%, 40% or 45% income-tax payer. You’ll pay HMRC a percentage of £13,785 based on the rate of income tax you pay; in this case, either £2,757, £5,514 or £6,203 a year respectively.

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Scottish residents are taxed in the same way, using Scottish income-tax rates of 19%, 20%, 21%, 41% and 46%. The amount of company-car tax you’ll pay to HMRC on £13,785 would be £2,619 at the lower rate rising to £6,341 at the highest rate. Most companies will deduct the tax due from your monthly salary, spreading the cost over the year.

Company car tax calculator: example 2 – electric car

BMW i4 eDrive35

The company car tax system works identically for an electric car, but we’re including this example to highlight the savings that choosing a car in a lower BiK band will provide.

We can compare the petrol-powered 3 Series with a similar car from BMW. An all-electric BMW i4 with a £51,440 P11D value sits in the lowest BiK band, with a rate of 2%. This results in a Benefit-in-Kind value of only £1,029 (2% of £51,440).

At the basic rate of tax in England and Wales it would cost only £206 per year, and at 40%, just £412 – comfortably less than a tenth of the petrol model.

Will I be taxed on company provided fuel?

If you use company provided fuel for personal miles – which includes commuting – then HMRC will tax you on that benefit too.

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Working out your fuel benefit tax liability is based on an HMRC-set ‘multiplier’ for your company car’s BiK percentage. The multiplier was set at £27,800 for the 2023/24 tax year, so for our notional BMW 3 Series example above you must multiply the car’s 34% BiK rate by £27,800, giving a figure of £9,452.

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This cash value is then multiplied by your income tax band, so a 20% taxpayer would have an annual bill of £1,890 deducted from their salary by HMRC. If you do very little private mileage – i.e. use less than £1,890-worth of petrol – it’s worth giving up the free fuel benefit, as you’ll be taxed the full amount regardless.

Electricity provided to recharge a company EV, whether at home or in the office, is not currently taxed as a benefit by the HMRC – meaning you’ll pay absolutely nothing until after the 2024/25 tax year.

Other factors influencing company-car tax

What fuel your car burns also affects the amount of company car tax you’ll pay. Some older diesel cars face a BiK rate 4% higher than petrols. A high-mileage driver will usually recover the difference in terms of better fuel economy. On the other hand, if you’re a low-mileage driver, the petrol car may be the cheaper option.

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However, diesel cars first registered after January 2021 meet the latest RDE2 emissions regulations and are therefore not subject to the additional 4%.

Making financial contributions to your company car scheme will lower your BiK rate, while employees who use their car part-time are also liable for less BiK tax. To find out how much of a reduction in company car tax you’re eligible for, use the company-car tax calculator on HM Revenue & Customs website: https://www.gov.uk/calculate-tax-on-company-cars

Changes to company car tax from 2020 onwards

In 2019, the Treasury announced that the BiK rates for the 2020/21 tax year would be replaced by two separate sets of rates; one for drivers of cars registered before 6 April 2020 and one for cars registered after that date.

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This split separates cars that had their emissions tested under the old NEDC (New European Drive Cycle) testing from those that have been tested under the new WLTP (Worldwide Harmonised Light Vehicle Test Procedure) criteria, with the latter generally producing a higher CO2 reading. The most significant change for the 2020/21 tax year was the introduction of a 0% BiK rate for electric cars registered from 6 April 2020. This has since risen to 2% for the current 2023/24 tax year and will stay at this level until April 2025.

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These low rates have also been retrospectively applied to electric company cars registered before 6 April 2020, along with hybrid cars registered after this date that emit under 50g/km of CO2 and are capable of a pure electric range of 130 miles (at present, there’s no hybrid model on sale in the UK that meets this criteria).

Company-car tax Benefit-in-Kind rates for 2024

To help you work out what your car's BiK rate is, we’ve listed the rates for cars registered after 6 April 2020 and for those registered before this date. Note that company-car tax rates are updated every year, though the rates for the 2023/24 and 2024/25 tax years are identical. The 2025/26 figures will go up by a single percentage point for everything below 160g/km of CO2.

Tax bands 2024 – Cars first registered after 6 April 2020

CO2 emissions (g/km)

Electric

range

(miles)

BiK rate (%)

Petrol,

Electric,

RDE2

Diesel**

Non-

RDE2

Diesel**

0

 

2

 

1-50

130+

2

 

1-50

70-129

5

 

1-50

40-69

8

 

1-50

30-39

12

 

1-50

<30

14

 

51-54

 

15

 

55-59

 

16

 

60-64

 

17

 

65-69

 

18

 

70-74

 

19

 

75-79

 

20

24

80-84

 

21

25

85-89

 

22

26

90-94

 

23

27

95-99

 

24

28

100-104

 

25

29

105-109

 

26

30

110-114

 

27

31

115-119

 

28

32

120-124

 

29

33

125-129

 

30

34

130-134

 

31

35

135-139

 

32

36

140-144

 

33

37

145-149

 

34

37

150-154

 

35

37

155-159

 

36

37

160-164

 

37

37

165-169

 

37

37

170+

 

37

37

Tax bands 2024 – cars first registered before 6 April 2020

CO2 emissions

(g/km)

Electric

range

(miles)

BiK rate (%)

Petrol,

Electric,

RDE2

Diesel**

Non-

RDE2

Diesel**

0

 

2

 

1-50

130+

2

 

1-50

70-129

5

 

1-50

40-69

8

 

1-50

30-39

12

 

1-50

<30

14

 

51-54

 

15

 

55-59

 

16

 

60-64

 

17

 

65-69

 

18

 

70-74

 

19

 

75-79

 

20

24

80-84

 

21

25

85-89

 

22

26

90-94

 

23

27

95-99

 

24

28

100-104

 

25

29

105-109

 

26

30

110-114

 

27

31

115-119

 

28

32

120-124

 

29

33

125-129

 

30

34

130-134

 

31

35

135-139

 

32

36

140-144

 

33

37

145-149

 

34

37

150-154

 

35

37

155-159

 

36

37

160+

 

37

37

What is a car allowance?

Some companies offer the choice of a car allowance as an alternative to a company car. This is essentially a cash amount given to you each month to help with your personal motoring costs. As with anything, there are advantages and disadvantages to this.

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A company car is likely to be renewed every few years and it’s possible that maintenance and any repairs will also be covered by the business, protecting you against any unexpected bills and hassle. If you choose a car allowance, you aren’t restricted to the list of cars offered by the company and can pay towards owning the car outright or buying a used car. Some companies may specify a vehicle age limit to qualify for their car allowance, so speak to your employer about any requirements they have.

A car allowance may also benefit anyone wanting to buy a higher-emissions vehicle, particularly those with a higher income who would prefer to drive a luxury or high-performance petrol car. Anyone who can commute in other ways or already owns a car (as long as it meets your company’s requirements) may also be better off financially with a car allowance.

For the best company cars you can buy, see our list of best company cars, or if your other car isn't a company car, read our guide to car tax for private owners.

More on UK car tax...

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Charlie writes and edits news, review and advice articles for Carbuyer, as well as publishing content to its social media platforms. He has also been a regular contributor to its sister titles Auto Express, DrivingElectric and evo. As well as being consumed by everything automotive, Charlie is a speaker of five languages and once lived in Chile, Siberia and the Czech Republic, returning to the UK to write about his life-long passion: cars.

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