What is Benefit in Kind (BIK) for Company Cars?
Benefit in Kind (BIK) tax applies to employees who receive perks from their employer that have a monetary value—such as a company car. If you drive a company car for personal use, it is considered a taxable benefit, and you’ll need to pay BIK tax. But how is this tax calculated, and what can you do to reduce your liability? In this guide, we’ll explain everything you need to know about BIK tax on company cars, including how to minimise costs and take advantage of tax-efficient options.
What is BIK on a Company Car?
BIK tax on company cars is a charge applied to employees who use a company-provided vehicle for private journeys. The tax is based on the car’s value, CO₂ emissions, and the employee’s income tax band.
Why Does BIK Tax Exist?
BIK tax is designed to ensure that employees who receive valuable benefits, such as a company car, pay tax on the privilege. The government uses this tax system to encourage businesses and employees to opt for greener, low-emission vehicles, which is why electric vehicles (EVs) and hybrids are often the most tax-efficient choices.
For the latest official BIK tax rates and tables, visit a Company Car Tax Rates page.
How is BIK Tax Calculated for Company Cars?
Your BIK tax bill depends on four key factors:
- The car’s P11D value – This is the official list price, including VAT and optional extras, but excluding registration fees and road tax.
- CO₂ emissions – The government sets BIK rates based on how polluting a car is. Cars with lower emissions attract lower BIK rates.
- BIK percentage rate – This is linked to emissions and fuel type. Fully electric vehicles (EVs) have the lowest BIK rates, while petrol and diesel cars with high emissions attract the highest rates.
- Your income tax band – The amount you pay depends on whether you fall into the 20%, 40%, or 45% income tax bracket.
Example: Petrol vs. Electric Car BIK Tax (2025/26)
| Factor | Petrol Car (Ford Focus 1.5L) | Electric Car (Tesla Model 3) |
| P11D Value | £30,000 | £40,000 |
| CO₂ Emissions | 120g/km | 0g/km |
| BIK Rate (2025/26) | 29% | 3% |
| BIK Value | £8,700 | £1,200 |
| Tax at 20% | £1,740 per year | £240 per year |
| Tax at 40% | £3,480 per year | £480 per year |
Key Takeaway:
Even with the increase to 3% in 2025, EVs remain the best choice for low BIK tax. The Tesla Model 3, for example, still saves over £1,500 per year in tax for a 20% taxpayer compared to a petrol car.
For an in-depth breakdown of current BIK rates, check out HMRC’s BIK tax tables.
