What is BIK tax? Company car tax, benefit in kind explained

BIK stands for Benefit-in-Kind and refers to any non-monetary benefit you get from employment at a company. In our world it’s almost always used in reference to company car tax, which applies with personal use of a company vehicle. For most people this will be when you buy a company car or van, although commuting in a pool car also falls under this tax rule as it’s technically personal use of a company vehicle.

In this guide we’ll look at what BIK means for you when working out your company car tax costs, along with the current BIK rates, discounts that certain cars get and some important terms you should know (scroll to the end for a quick glossary). Read on to find out everything you need to know about BIK.

What is BIK tax?

BIK (Benefit-in-Kind) tax is what you pay if you get a company car and use it for anything other than work – like commuting or running errands. HMRC sees it as a work perk, so it’s taxed. How much you pay depends on things like the car’s value and how clean it is – we’ll explain that in the next section.

How do I calculate BIK tax?

Benefit-in-Kind is calculated based on the car’s price, the amount of CO2 it emits and your personal income. The car’s price is called the P11D Value, which is the total price of a new car including any optional extras and VAT, but not including the first-year VED charge and registration fee. 

It also does not include any manufacturer discounts or the plug-in car grant – the P11D value is an official figure and will be displayed in a brochure or price list from a manufacturer’s official website.

BIK uses tax bands based on CO2 emissions (and electric range for plug-in hybrids) as well, which are published by HMRC. You can see the tax bands in the table below and the band a car sits in dictates what percentage its P11D value – also known as the BIK value – it will be taxed on. Your own income also affects it, although not on a sliding scale; it simply depends if you are in the 20% band or the 40% band for income tax.

Let’s look at an easy example to help you understand exactly how it works. We’ll use a Volkswagen Golf 1.5 TSI Style. It has a P11D value of £29,560. It emits 126g/km of CO2, which means BIK tax is charged at a rate of 30% of the P11D value – that works out at £8,868.

If you’re in the 20% income tax band, the amount of BIK tax you’ll pay is 20% of £8,868, which is £1,774 per year. If you’re in the 40% income tax bracket, you’ll pay 40% of it, which is £3,547 per year.

BIK tax is paid monthly, so you simply divide the total amount you’ll be paying by 12 to work out the monthly cost. If you’re paying £1,774 in total, that’s £147.83, which is deducted from your pre-tax salary.You can find the company car tax costs for all new cars using the company car tax calculator at our sister site, Fleet News.

What are the BIK rates from 2024 to 2025?

The table below outlines the BIK tax bands for tax years 2023-24 through to 2027-28. The bands are based on a car’s CO2 emissions (and electric range for plug-in hybrids). These bands apply to vehicles registered after 6 April 2021.

CO2 (g/km)	Electric range (miles)	2023-24 (%)	2024-25 (%)	2025-26 (%)	2026-27 (%)	2027-28 (%)
0	–	2	2	3	4	5
1-50	>130	2	2	3	4	5
1-50	70-129	5	5	6	7	8
1-50	40-69	8	8	9	10	11
1-50	30-39	12	12	13	14	15
1-50	<30	14	14	15	16	17
51-54		15	15	16	17	18
55-59		16	16	17	18	19
60-64		17	17	18	19	20
65-69		18	18	19	20	21
70-74		19	19	20	21	21
75-79		20	20	21	21	21
80-84		21	21	22	22	22
85-89		22	22	23	23	23
90-94		23	23	24	24	24
95-99		24	24	25	25	25
100-104		25	25	26	26	26
105-109		26	26	27	27	27
110-114		27	27	28	28	28
115-119		28	28	29	29	29
120-124		29	29	30	30	30
125-129		30	30	31	31	31
130-134		31	31	32	32	32
135-139		32	32	33	33	33
140-144		33	33	34	34	34
145-149		34	34	35	35	35
150-154		35	35	36	36	36
155-159		36	36	37	37	37
160-164		37	37	37	37	37
165-169		37	37	37	37	37
170+		37	37	37	37	37

Different rates apply to older cars registered before 6 April 2021

Are there BIK tax discounts for electric and hybrid cars?

The BIK rates shown in the table above apply to all vehicles registered after 6 April 2021. The BIK for electric cars such as the Vauxhall Mokka Electric (below), was once 0%, however the rate currently stands at 2% and will gradually increase to 5% for the 2027-28 financial year.

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What about diesels – do I have to pay extra?

If you have a company car that was registered in the period 2018 to 2020, a 4% surcharge applies to any diesel car that does not meet the latest Euro 6d emissions standards – also known as RDE2 compliance. The surcharge is applied to the BIK band, so a car that falls into the 24% band would be pushed up to 28%. All cars sold after 1 January 2021 must comply with RDE2, however, so the surcharge will only apply to older vehicles.

How does the fuel benefit relate to a company car?

Fuel benefit applies if you have unrestricted access to a company car for private use and your company pays the full fuel bill. If you reimburse your employer for fuel, following the rates per mile set out in the quarterly-updated Advisory Fuel Rates, you do not incur a fuel benefit tax.

Fuel benefit tax is based on a flat annual rate that’s £27,800 in the 2024-25 financial year. The percentage of that figure that you have to pay in tax is tied to your company car’s BIK tax band and your income tax band.

So, if your car is in the 29% BIK band, you have to pay fuel benefit tax on 29% of £27,800, which is £8,062. If you pay income tax at 20%, that works out as an annual fuel benefit bill of £1,612. If you’re in the 40% income tax bracket, you pay £3,224. That’s on top of paying BIK tax.

Vans and most pickups and commercial vehicles attract a flat-rate fuel benefit of £757 per year for 2024-25. Again, what percentage of that you pay in fuel benefit fuel tax is tied to your income tax bracket.

Electric cars do not currently incur a fuel benefit charge, though you can be reimbursed for your charging costs. A charging point provided for your use and paid for by the company can still be an attractive benefit and an incentive to switch to a greener vehicle.

How does BIK tax compare with salary sacrifice or cash alternative schemes?

Unlike company car schemes, where the company pays for the car, in salary sacrifice arrangements you pay for the car by ‘sacrificing’ some of your pre-tax salary. A salary sacrifice car can still be eligible for BIK tax. A driver will be taxed on whatever is the greater of:

• the income tax due on the amount of salary sacrificed on the finance or rental of the vehicle
• the BIK tax charge on the car

For salary sacrifice cars with CO2 emissions of less than 75g/km, BIK tax rules are applied by default which can make electric and plug-in hybrid cars more cost effective. You can find out more about salary sacrifice on Parkers.

It’s a similar situation if you take a cash alternative. If you receive an additional £6,000 per year in lieu of taking a company car that incurs BIK tax of, say, £3,560, you will be taxed for the full £6,000 – with a corresponding increase in National Insurance contributions, plus a potentially higher income tax bracket to reflect your higher gross salary.

In other words, you’re going to be taxed on the benefit you actually receive, be it extra income that facilitates being or leasing a vehicle yourself, or the company providing you with a vehicle.

How much BIK tax will I pay on a company van?

We have a full guide to van tax. In short, the good news about company vans is that BIK tax is charged at a fixed rate.

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What’s more, you’ll only pay BIK on a van if you have personal use of it. You’re allowed ‘reasonable’ use of a van before you have to pay BIK, but this means only taking it home if you’ve got an early start in the morning, and limiting personal-use journeys to a short detour to pick up a newspaper or lunch. BIK will be applied if you use a van for the weekly supermarket shop, for instance.

The current van BIK rate is £3,960, and the amount you pay is calculated by multiplying that by your income tax banding. This works out at £792 per year at the 20% rate or £1,584 per year at the 40% rate. If lots of people share the van, the BIK cost can be divided between them, and remember the higher rate only applies to the income or benefit over the threshold.

Double-cab pickup trucks are currently treated as vans for BIK purposes, however from April 2025 they will be subject to the same rates as cars. The government tried a similar ploy early in 2024 but U-turned after a massive backlash. But HMRC remained determined to change the rules; we will have to wait and see if another reversal happens.

Upcoming changes to BIK rates

The BIK rates that will apply after the 2027/2028 financial year were announced by Chancellor Rachel Reeves in the Labour Government’s first Budget since taking office. The most notable change is that rates for hybrid cars will increase to bring them closer to those of internal combustion cars, and the electric range of plug-in hybrids will cease to be a consideration. As a result, the gap between the BIK rates applicable to electric cars and ICE cars will widen, in an attempt to increase the uptake of EVs.

The increases will be staggered across the 2028/2029 and 2029/2030 financial years. The BIK rates for cars that emit 1-50g/km of CO2 will be 18% in 2028/2029, a big jump for plug-in hybrids with the longest electric range. In 2029/2030, the rates rises again to 19%.

Every BIK band for cars that emit more than 51g/km will increase by one percentage point in 2028/2029 to a range of 19-38%, and again in 2029/2030 to 20-39%. EVs don’t escape rate rises, but they stay very low in comparison to those for other types of car. Increases of two percentage points will be applied, taking the rate to 7% in 2028/2029 and 9% in 2029/2030.

How do I avoid BIK tax on my company car?

The cost of BIK and fuel benefit tax can really add up so it might be tempting to try to avoid it, especially if you’re a sole trader who isn’t answerable to a big corporation’s finance department. But it’s not worth trying.

HMRC is very good at keeping tabs on who uses a company car and does catch up to people who haven’t paid the tax they should. In those cases, there are usually penalties and interest to pay on top of the tax owed; particularly egregious offences could see you being disqualified from running a business or even convicted of fraud.

Common BIK tax terms

Benefit-in-kind (BIK): this is any benefit which employees receive from their employer that’s not included in their salary. In our example, we’re talking about company cars, which are taxed according to the employee’s earned salary.

Emissions: the gases a car emits from its exhaust. For BIK tax, the key gas is carbon dioxide (CO2).

g/km: the amount of carbon dioxide emitted by a car is measured in grams per kilometre.

P11D: this is the form that each employer must fill in annually and send to the tax office to show that they have benefitted from a company care.

P11D value: this is the value of your company car including the list price, VAT, delivery charge and any extras such as metallic paint or satellite navigation. It does not include first-year VED or registration fees.

Personal tax allowance: this is the sum of money you can earn without being taxed. It currently stands at £12,570 in the 2024-25 financial year.

• Visit our car tax advice section for more expert advice