Fleet and company car tax explained and BIK rates from 2024 to 2028

This fleet car tax guide explains how the company car tax system works, how to work out benefit-in-kind (BIK) rates and lists all BIK tax bands until April 2024 then to 2027/28...

Seat Leon right driving

A company car is one a business provides to an employee so they can use it to carry out their work, plus do private journeys. Also known as a fleet vehicle, it can act as an attractive perk to encourage new employees to join your firm.

On the surface, it’s a win-win: the employee gets a sparkling new car or van, while the employer can sleep soundly at night knowing work journeys are being done in something that’s safe, reliable and efficient.

A fleet car isn’t necessarily the most cost-effective option for everyone, though. Before you start browsing your firm's company cars list, it pays to do a few sums to make sure the numbers add up for your circumstances.

Use our company car tax calculator

That’s where we come in – this guide to company car tax can help you make sense of the system, and help you get the right fleet vehicle at the right price.

How to work out your company car tax

Most company car drivers use their vehicles for business and pleasure, which means they must pay benefit-in-kind (BIK) tax on it – and it’s vital that you work out exactly how much you’ll have to pay each month to HMRC.

First up, you need to know your company car’s P11D value. This is the list price, including of VAT and delivery charges, but not including the first registration fee of the first year of road fund licence. Don’t forget any extras you plan to add to the car's basic spec – these have to be included in the P11D calculation.

Next, you need to know your car’s official CO2 emissions figure. Cars are classified in percentage bands according to the amount of CO2 they emit.

Bear in mind that electric cars have no exhaust emissions, which is part of what makes them such popular fleet cars. The CO2 figure for any non-electric vehicle can be found on the manufacturer’s website.

You may have noticed that plug-in hybrids (PHEVs) have become another popular option for fleet drivers. With PHEVs, the distance they can officially be driven using just the battery and electric motor (i.e. without the engine kicking in) is taken into account for the BIK rate.

Read more: Cheapest company cars for BIK tax

It’s a lot to think about, but the general rule of thumb is that the more expensive a vehicle is, and the more CO2 it emits, the more you’ll have to pay in company car tax.

Tax bands run from 2% to 37% for the current 2023-24 tax year. Slightly different rates apply depending on whether the car was registered before or after 6 April 2020. (That's the date official CO2 output moved from the old NEDC test figures to the tougher WLTP protocol.)

So, if your company car has a P11D value of £30,000, emits 120g/km of CO2 (which puts it in the 29% BIK bracket – see table below) and you pay tax at 20%, you need to do this calculation:

£30,000 x 0.29 x 0.20 = £1,740 per year = £145 each month

If all that looks a bit too much like a maths A-level exam question, don't despair.

There's a quick and simple way to find out any UK car's BIK rate in seconds: just look it up using our company car tax calculator. As well as the BIK rate, it will give you two figures for the amount payable annually – one for 20% taxpayers, the other for 40% taxpayers.

Read more: How to pay less company car tax

How do I decide whether or not to take a company car?

Everyone’s circumstances will be slightly different, but the long and the short of it is that you’ll likely pay much less in tax for a new company car than you would financing and running a car privately.

The secret lies in being prepared. If you can work out how much you would pay each month for a private vehicle (remembering to include servicing and running costs), you can compare that with the equivalent costs you’ll face for a fleet car.

Pool car or fleet car: what’s the difference?

A pool car is one that is only ever used for business travel, and is available for any company employee to book and use. That means its availability will be restricted, as will what you can use it for. The good news is that you won’t be taxed on it, unless you use it for journeys that are not related to work needs.

Cupra Born charging up

What is the company car tax on an electric car?

Electric cars and electric vans sit in the lowest BIK taxation bands. That makes them very cost-effective fleet vehicles if you can find a model with a long enough battery range for your regular work journeys, and you know you'll be able to find places to charge up when needed.

Since 2021, electric fleet vehicles have been subject to a 2% rate, and that will be the case until 2025, after which the rate will rise by 1% annually until 2028. Nevertheless, someone running an electric model as a fleet vehicle will pay thousands of pounds less in company car tax each year than someone with a petrol or diesel.

So, in short – if you can do your job with a vehicle that can't go as far as a petrol or diesel,  and will take longer to 'refuel' each time, an electric car probably is the best choice.

Try our BIK tax calculator

Is a diesel company car still a viable option?

Diesel is almost a pariah fuel these days. That's because diesel cars must pass a stringent emissions test, called Real Driving Emissions Step 2, or RDE2 for short, and if they do, there’s no taxation penalty. The problem lies with vehicles registered before January 2021, because these are not RDE2 compliant, and are therefore subject to a four-band taxation penalty, up to a maximum of 37%.

What are the alternatives to a company car?

A salary sacrifice scheme offers a different way to get yourself into a fleet vehicle. You earn a lower salary, so you pay less income tax and National Insurance, and you get a shiny new company car. Bear in mind, though, that the car is still deemed to be a benefit by HMRC, so you'll still pay tax on it.

Another alternative to running a company car is using your own vehicle for work. Your employer is likely to offer reimbursement on a pence-per-mile basis for any work driving you do in it, or will cover the cost of fuel for business journeys.

Read more: The best company cars in the UK

The advantage of that is that you get to drive any car you want, and if your car is older and economical you could also save cash. However, if having a gleaming new car on the drive is a priority, then you’ll likely end up paying more in finance payments than you would if you’d stuck with the fleet scheme and just paid BIK company car tax. 

You could also be offered a company car allowance by your employer. You'll pay tax on the allowance at your income tax rate, but you can then use what's left to buy the car you want. This is a big plus if your employer offers a limited choice of company cars.

UK company car tax bands from 2023-24 to 2027-2028

Below are the benefit-in-kind (BIK) tax bands for petrol, hybrid, plug-in hybrid and electric cars for the coming five tax years, from 2023-2024 to 2027-2028. 

CO2 g/km Electric range (miles) 2023-2024
2025-2026 2026-2027 2027-2028
0 n/a 2 3 4 5
1-50 >130 2 3 4 5
1-50 70-129 5 6 7 8
1-50 40-69 8 9 10 11
1-50 30-39 12 13 14 15
1-50 <30 14 15 16 17
51-54   15 16 17 18
55-59   16 17 18 19
60-64   17 18 19 20
65-69   18 19 20 21
70-74   19 20 21 21
75-79   20 21 21 21
80-84   21 22 22 22
85-89   22 23 23 23
90-94   23 24 24 24
95-99   24 25 25 25
100-104   25 26 26 26
105-109   26 27 27 27
110-114   27 28 28 28
115-119   28 29 29 29
120-124   29 30 30 30
125-129   30 31 31 31
130-134   31 32 32 32
135-139   32 33 33 33
140-144   33 34 34 34
145-149   34 35 35 35
150-154   35 36 36 36
155-169   36 37 37 37
160-164   37 37 37 37
165-169   37 37 37 37
170+   37 37 37 37

Is company fuel worth it?

You’ll be taxed if you do personal miles using fuel your company has paid for. To help you work out just how much tax you’ll have to pay, HMRC has provided a ‘multiplier’ that relates to your company car’s BIK percentage. For 2023-24, the figure is £27,800, which you then multiply by your car’s taxation percentage.

Thereafter, all you need to do is multiply the resulting figure by your personal income taxation percentage (20% or 40%). That lets you work out whether or not you’ll do enough personal mileage to make paying the extra tax worthwhile. If you won’t, then it’s worth ditching your company fuel card, because you’ll pay less to fuel the car than you would in tax.

Read more: How to pay less BIK tax
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