Benefit in Kind (BiK), or company car tax, is a long-standing part of using a company vehicle. With monthly costs to consider, choosing the right car is more important than ever. Many employers are now favouring fully electric cars for their fleets, drawn by significant tax incentives. However, understanding how these benefits translate to your payslip can be confusing.
While electric vehicles (EVs) offer substantial savings through lower BiK rates, it's crucial to understand exactly what this means for you. The good news is that the government has provided a clear, long-term view of these rates, making it easier to plan for the future.
A benefit in kind is any non-cash benefit of monetary value that is provided for an employee by the company that they work with. This can be medical insurance, a company car, or child care vouchers and usually require tax to be paid on them, although there are some that are tax free.
BiK tax was first introduced in 2002 and applies to any car provided by a company for an employee's private use. The idea behind it was to encourage businesses and drivers to choose company cars with lower CO2 emissions.
A company car is classed as a taxable perk. The calculation considers the vehicle's value, its CO2 emissions, and your personal income tax rate.
The most significant financial advantage of choosing an electric company car is its substantially lower BiK tax rate compared to petrol or diesel alternatives. For the 2024/25 tax year, the BiK rate for zero-emission electric cars is just 2%.
To provide certainty for drivers and businesses, the government has already outlined a clear, gradual increase for the coming years. This ensures that EVs will remain the most tax-efficient option for the foreseeable future. The planned rates are:
For comparison, petrol and diesel cars are taxed at much higher rates, reaching up to 37% depending on their CO2 emissions. Even plug-in hybrid vehicles (PHEVs), which have a small electric range, are subject to higher rates that vary based on how far they can travel on battery power alone. For the 2025/26 tax year, a PHEV with an electric range of less than 30 miles will have a BiK rate of 15%, five times higher than a fully electric car.
The amount of company car tax you pay is based on three key factors: the car's P11D value, its BiK tax rate, and your personal income tax bracket.
The P11D value is the list price of the car, including VAT, delivery fees, and any factory-fitted optional extras. Your employer is responsible for reporting this value to HMRC.
The amount you pay as an employee is then calculated using a simple formula:
P11D Value x BiK Rate x Your Income Tax Rate (20% or 40%) = Annual Company Car Tax
For example, take the all-electric Jaguar I-Pace EV400 R-Dynamic SE Black for the 2025/26 tax year. It has a P11D value of £73,440 and a BiK rate of 3%.
Compared with a similar petrol SUV - which typically falls into much higher BiK bands (often 25–37% depending on CO₂) - the I-Pace can still deliver substantial tax savings each year.
While BiK rates are the main consideration, it's also important to be aware of upcoming changes to Vehicle Excise Duty (VED), or road tax.
From 1 April 2025, electric cars will no longer be exempt from VED.
Even with these changes, the total running costs and tax liabilities for an electric company car remain significantly lower than for petrol or diesel models.
Company car tax is an unavoidable part of the package, but choosing an electric vehicle is the smartest way to minimise the impact on your payslip. The huge savings offered by lower BiK rates are set to continue for years to come, with the government providing a clear roadmap that gives both businesses and employees the confidence to invest in electric.
While new VED rules are being introduced from 2025, the overall financial case for choosing an EV as your company car remains compelling. For any driver with the option, an electric car is a fantastic choice. It not only keeps more money in your pocket and helps the environment but also offers the perfect opportunity to experience the benefits of electric driving without the commitment of a personal purchase.
