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Benefit in Kind (BIK) cars are vehicles provided by an employer for an employee’s use that are considered a taxable benefit by HMRC. If the car is available for private use, including commuting, it qualifies as a Benefit in Kind, and the employee must pay income tax based on the vehicle’s taxable value.
The BIK value of a company car is calculated using several factors:
The car’s list price (before discounts)
Its CO₂ emissions and fuel type
The employee’s income tax band
Electric cars have become increasingly popular due to their favourable BIK rates. For the 2025/26 tax year, fully electric vehicles attract a BIK rate of just 2%, making them one of the most tax-efficient company car options.
Both employers and employees must report and pay the correct tax on company vehicles, with the employer also liable for Class 1A National Insurance on the benefit.
Benefit in Kind (BIK) for electric cars applies when an employer provides an electric vehicle for an employee’s use, including for personal journeys such as commuting. Although the car isn't part of the employee’s salary, it is still considered a taxable non-cash benefit by HMRC.
The amount of tax due is based on a percentage of the car’s list price, known as the BIK rate. For electric cars, this rate is significantly lower than for petrol or diesel vehicles, making them a more tax-efficient choice under current UK tax policy.
Employers must:
Report the benefit using a P11D form or via payrolling benefits
Pay Class 1A National Insurance contributions on the taxable value
Employees:
Pay income tax on the BIK value, based on their tax band
The system is designed to encourage low-emission vehicle use, with favourable rates for electric cars as part of the UK’s push towards net zero.
The Benefit in Kind (BIK) rate for electric cars in the 2025/26 tax year remains at a highly competitive 2%, continuing the Government’s incentive to encourage greener travel through tax relief.
This rate applies to zero-emission electric vehicles (EVs) provided to employees as company cars and used for any form of personal travel. Despite recent policy reviews, the UK continues to offer this low rate to align with environmental targets and reduce fleet emissions.
To calculate the BIK charge:
Take the vehicle’s list price
Multiply by the 2% BIK rate
Apply the employee’s income tax band (20%, 40% or 45%)
This makes electric vehicles one of the most tax-efficient benefit in kind cars available, especially when compared to traditional combustion engines, where BIK rates can exceed 30%.
Employers must still report the benefit to HMRC and account for Class 1A NIC, even though the employee's income tax liability is minimal.
Yes, electric company cars are taxed differently to petrol or diesel vehicles under Benefit in Kind (BIK) rules. The key difference lies in the significantly lower BIK rates applied to zero-emission vehicles.
While traditional company cars are taxed based on factors like CO₂ emissions, fuel type, and list price, fully electric vehicles (EVs) benefit from a flat BIK rate—currently 2% for 2025/26—regardless of make or model.
Key advantages of electric BIK taxation:
Lower BIK rate (2%) vs. 15–37% for internal combustion engine cars
Reduced income tax for employees
Lower Class 1A NIC liabilities for employers
This favourable treatment reflects the Government's environmental strategy, aimed at reducing the UK’s carbon footprint through cleaner corporate fleets.
However, it’s important to note that hybrids and plug-in hybrids are not taxed the same as fully electric cars and have their own banding based on emissions and electric range.
CO₂ emissions play a central role in determining the Benefit in Kind (BIK) rate for company cars, directly influencing how much tax an employee pays on the benefit. The higher the emissions, the higher the BIK rate applied.
For electric cars, which have zero emissions, the BIK rate is set at 2%, regardless of make or mileage. This makes them far more tax-efficient than internal combustion engine vehicles.
For other vehicle types, emissions affect BIK as follows:
| CO₂ Emissions | Electric Range (if applicable) | Typical BIK Rate (2025/26) | Vehicle Type |
|---|---|---|---|
| 0g/km | N/A | 2% | Fully electric |
| 1–50g/km | Over 130 miles | 2% | Plug-in hybrid (very efficient) |
| 1–50g/km | Under 30 miles | 14% | Plug-in hybrid (limited range) |
| 51–75g/km | N/A | 15%–19% | Low-emission petrol/diesel |
| Over 100g/km | N/A | 25%–37% | Standard petrol/diesel |
This system incentivises the use of low-emission vehicles, especially in company fleets. Employers should review emissions data before assigning vehicles, as even small changes can result in higher tax liabilities for employees.
The key difference between electric and petrol car Benefit in Kind (BIK) lies in the tax rate applied. Electric cars are taxed at a much lower rate due to their environmental benefits, while petrol and diesel cars incur higher charges based on their CO₂ emissions.
Here’s how they differ:
| Vehicle Type | Typical BIK Rate (2025/26) |
|---|---|
| Fully Electric | 2% |
| Hybrid (low CO₂) | 2–14% |
| Petrol | 25–37% |
| Diesel | 28–37% |
Electric cars qualify for further salary sacrifice tax advantages
Petrol cars are often subject to diesel surcharges
HMRC uses CO₂ emissions and fuel type to determine BIK bands
For both employers and employees, electric BIK cars offer substantial savings on tax and National Insurance, making them the preferred option in most tax-efficient fleet strategies.
The number of UK employees driving fully electric company cars soared to 344,000 in the 2023/24 tax year—a 56% increase in just one year—highlighting the rapid uptake of tax-efficient electric vehicles among businesses.
- BVRLA
Hybrid cars can qualify for lower Benefit in Kind (BIK) rates, but not as low as fully electric vehicles. Their rate depends on CO₂ emissions and electric-only driving range, following HMRC’s detailed banding system.
For the 2025/26 tax year, BIK rates for hybrids range from 2% to 14%, depending on these factors:
1–50g/km CO₂ with over 130 miles electric range – 2%
1–50g/km with 70–129 miles range – 5%
1–50g/km with 40–69 miles range – 8%
Below 30 miles electric range – up to 14%
Hybrids remain more tax-efficient than petrol or diesel cars but don’t receive the same incentives as fully electric models.
While they offer a middle ground, it’s important to calculate the actual savings when comparing benefit in kind electric cars and hybrids, especially under salary sacrifice schemes.
Calculating company car Benefit in Kind (BIK) involves a few key steps and is determined by HMRC rules based on the vehicle’s characteristics and usage.
Here’s how the calculation works:
Identify the car’s list price (including VAT and any optional extras, but excluding discounts)
Apply the BIK rate based on:
CO₂ emissions
Fuel type (electric, petrol, diesel, hybrid)
Electric-only range (for hybrids)
Multiply the list price by the BIK rate to get the taxable value
Multiply the taxable value by the employee’s income tax band (20%, 40%, or 45%)
Electric cars offer the simplest and most favourable outcome, with a flat 2% BIK rate. For example:
EV with £40,000 list price
2% BIK rate = £800 taxable value
20% taxpayer = £160 annual tax
Employers also pay Class 1A National Insurance on the taxable benefit, which must be reported to HMRC via P11D or payroll.
The employee pays the Benefit in Kind (BIK) tax on an electric company car, while the employer is responsible for reporting the benefit and covering Class 1A National Insurance contributions on its value.
For the employee:
The taxable value is calculated by multiplying the car’s list price by the BIK rate (2% for fully electric vehicles)
The result is taxed at their income tax band:
20% (basic rate)
40% (higher rate)
45% (additional rate)
For the employer:
The BIK value must be reported on a P11D form or via payrolling benefits
Employers pay 13.8% Class 1A NIC on the same BIK value
Because electric vehicles attract such low BIK rates, the overall tax burden is significantly lighter for both parties, making benefit in kind electric cars one of the most tax-efficient options in a modern benefits package.
Yes, salary sacrifice can significantly reduce the overall tax cost of having an electric company car under Benefit in Kind (BIK) rules. When an employee agrees to give up a portion of their gross salary in exchange for a fully electric vehicle, the arrangement can lead to savings on both income tax and National Insurance contributions.
Because benefit in kind electric cars currently attract a BIK rate of just 2%, the combination of low taxable value and salary sacrifice makes electric cars one of the most tax-efficient options in the UK.
Benefits of combining BIK with salary sacrifice:
Reduces taxable salary
Offers lower BIK tax due to the 2% rate
Cuts employer and employee National Insurance
Often includes insurance, servicing, and maintenance
However, it's important to ensure the scheme is structured in line with HMRC’s Optional Remuneration Arrangements (OpRA) rules.
Learn more about how this works in our Salary Sacrifice Services or see our blog on Salary Sacrifice vs Benefit in Kind for a detailed comparison.
When it comes to company cars, tax efficiency depends heavily on the Benefit in Kind (BIK) rate applied. Vehicles with lower emissions and strong electric-only performance attract the most favourable rates. This makes fully electric vehicles (EVs) and select plug-in hybrids especially attractive options for both employers and employees.
| Vehicle Type | Typical BIK Rate (2025/26) | Key Notes |
|---|---|---|
| Fully Electric Vehicles (0g/km CO₂) | 2% | Most tax-efficient option with zero emissions |
| Plug-in Hybrids (>130-mile EV range) | 2% | Only select models qualify; ideal for mixed-use driving |
| Low-Emission Hybrids (1–50g/km CO₂) | 5%–14% | Depends on electric range; the longer the range, the lower the BIK rate |
| Petrol or Diesel Cars | 25%–37% | High BIK due to emissions; least tax-efficient |
| Vehicles in Salary Sacrifice Schemes | Varies | Fully electric cars in salary sacrifice offer extra tax/NIC savings |
Examples include:
Tesla Model 3 / Model Y
Hyundai Ioniq 5
BMW i4
Kia EV6
In contrast, petrol and diesel cars may incur BIK rates of 25%–37%, depending on emissions.
Opting for low-emission or electric vehicles can significantly reduce tax liabilities under BIK rules. When paired with salary sacrifice schemes, these vehicles offer even greater financial advantages. Always check the latest HMRC BIK tables and consider both emissions and electric range before selecting a company car.
HMRC calculates Benefit in Kind (BIK) for company cars using a formula that takes into account several key factors. The purpose is to determine the taxable value of the non-cash benefit provided to the employee for personal use.
To calculate the BIK value for a car:
Determine the car’s list price (including VAT and accessories)
Apply the appropriate BIK rate, based on:
CO₂ emissions
Fuel type (electric, petrol, diesel, hybrid)
Electric-only range (for hybrids)
Multiply the list price by the BIK percentage to find the taxable benefit
Apply the employee’s income tax rate to that value
Example (Electric Car):
£40,000 list price
2% BIK rate = £800 taxable benefit
20% taxpayer = £160 annual income tax
For benefit in kind electric cars, HMRC applies a flat 2% rate, which simplifies the process and reduces the liability significantly compared to combustion engine cars. The employer must report the BIK value on a P11D or through payroll.
If a company car is used for personal journeys, including commuting, it is classed as a Benefit in Kind (BIK) and becomes taxable. This applies whether the car is fully electric or not.
HMRC defines private use as any journey not made “wholly and exclusively” for business purposes. This includes:
Driving to and from work
Visiting family or running personal errands
Leisure trips
When private use occurs:
The car must be reported as a BIK
The employee pays income tax on the calculated BIK value
The employer pays Class 1A NIC
Even if the car is an electric vehicle with a low BIK rate (e.g. 2%), it must still be declared if personal use is allowed.
Some employers restrict private use or require mileage logs to avoid or reduce BIK liability. However, if personal use is not prohibited and monitored, HMRC will assume it occurs and tax the benefit accordingly.
Electric vans and commercial EVs are treated differently under Benefit in Kind (BIK) rules compared to standard company cars. While they are still taxable if used for personal journeys, the BIK rate for electric vans is currently 0%, offering even greater tax efficiency. Always check HMRC's latest classifications and exemptions for commercial EVs.
Check out our Van Benefit In Kind article for the full breakdown.
To comply with HMRC requirements, employers must keep detailed and accurate records when offering company cars that qualify as Benefits in Kind (BIKs). Good record-keeping ensures correct tax reporting and minimises the risk of penalties.
Essential records include:
Vehicle details: make, model, list price, CO₂ emissions
Date of availability: when the car was first provided
Employee details: name, position, tax code
Personal vs business mileage (if relevant)
Fuel usage records (especially for fuel benefit calculations)
Written policies on private use restrictions (if applicable)
Employers must report BIKs either via P11D forms or through payrolling benefits, and submit a P11D(b) for Class 1A National Insurance.
Inadequate records can lead to incorrect reporting, HMRC enquiries, and unexpected tax bills. For benefit in kind electric cars, reporting is simpler—but accurate documentation is still essential to demonstrate compliance.
Managing Benefit in Kind (BIK) cars, especially benefit in kind electric cars, internally without professional support can expose both employers and employees to a range of tax and compliance risks. While the rules may seem manageable at first glance, errors in interpretation or reporting can have serious financial consequences.
Key risks of handling BIK internally include:
Incorrect tax calculations due to misunderstanding of list price, BIK rates, or tax bands
Inaccurate or missed P11D submissions, leading to HMRC penalties
Unmonitored personal use, resulting in under-reported BIK liabilities
Misapplication of hybrid or electric vehicle emissions rules
Failure to comply with salary sacrifice or Optional Remuneration Arrangement (OpRA) regulations
With evolving HMRC policies and increasing adoption of benefit in kind electric cars, expert guidance helps ensure that your business remains compliant, efficient, and protected from avoidable tax issues.
Pulse Accountants specialise in the complexities of benefit in kind cars, offering expert tax planning and compliance support, particularly for benefit in kind electric cars. Their proactive approach ensures your business minimises tax liabilities while meeting all HMRC obligations.
Pulse Accountants can help by:
Providing accurate BIK calculations based on list price, emissions, fuel type, and income tax bands
Ensuring timely and correct P11D, P11D(b), and payroll submissions
Offering strategic advice on company car selection for maximum tax efficiency
Structuring and reviewing salary sacrifice schemes in line with HMRC rules
Keeping your business up to date with changes to BIK rates and legislation
Creating compliant documentation including private use declarations and mileage logs
With Pulse, you get more than just accounting—you gain a trusted advisor who actively works to lower your risk and increase your returns from benefit in kind electric car schemes.
"In my experience, many businesses underestimate the long-term savings electric company cars can offer under Benefit in Kind rules. With the 2% BIK rate holding steady through 2025/26, employers and employees can unlock major tax efficiencies—if managed correctly."
- Caicy McConnell, Accounting Technician/Bookkeeper at Pulse Accountants
When it comes to managing benefit in kind cars, choosing a knowledgeable and experienced accountant is essential—especially with the growing popularity of benefit in kind electric cars. Pulse Accountants combine technical expertise with strategic planning to help businesses reduce tax, stay compliant, and make informed fleet decisions.
Reasons to choose Pulse Accountants:
Specialist knowledge in electric, hybrid, and low-emission vehicle taxation
A strong record of helping businesses lower BIK and Class 1A NIC liabilities
Tailored advice that fits your company’s size, sector, and benefit strategy
Proactive compliance support to avoid HMRC errors and penalties
Detailed tax impact analysis to guide car scheme decisions
Integration with payroll and HR systems for smooth administration
With Pulse Accountants, you don’t just meet your obligations—you unlock the full value of your benefit in kind car arrangements.
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