Company Car Tax on Electric Cars: BIK Rates Explained

Company car tax on electric vehicles is calculated through a Benefit-in-Kind (BIK) charge, and EVs attract a substantially lower BIK rate than petrol or diesel equivalents. That lower rate is one of the main reasons electric cars are now so popular as company vehicles and through salary sacrifice schemes. The rate is set to rise gradually over the coming tax years, following a government-published roadmap, but it remains well below combustion engine rates. Before making any decision, check the current HMRC BIK table on gov.uk, and see our EV guides for practical ownership advice.

What is Benefit-in-Kind tax and who pays it?

BIK tax applies whenever an employer provides an employee with a benefit that has a personal value, such as a company car available for private use. HMRC treats that benefit as a form of income, so the employee pays income tax on its value and the employer pays Class 1A National Insurance. Both the employee and the employer carry a cost, which is why the BIK rate matters so much when choosing between vehicle types. A lower rate reduces the bill on both sides of the equation.

How is BIK tax on a company car actually calculated?

The formula works in two steps. First, multiply the car's official list price (the P11D value, which includes factory options but excludes the first-year registration fee and road tax) by the BIK percentage for that vehicle type and tax year. The result is the taxable value, sometimes called the cash equivalent. Second, multiply that taxable value by your income tax rate (20% for basic-rate taxpayers, 40% for higher-rate taxpayers) to arrive at your annual BIK tax bill.

Illustrative example (figures are not real current rates)

Suppose a car has a list price of £X, the BIK rate for that tax year is Y%, and you pay income tax at Z%. Your taxable value would be £X × Y% and your annual tax would be that result × Z%. Do not use made-up figures for financial decisions. Always substitute the real current rate from the HMRC BIK table on gov.uk before doing any calculation.

Why do electric cars attract a lower BIK rate?

BIK rates for cars are set by HMRC and broadly track CO2 emissions. Because fully electric vehicles produce zero tailpipe emissions, they sit in a separate, much lower band. The government introduced these low rates deliberately to encourage uptake of zero-emission vehicles through the company car and salary sacrifice route, and the policy has worked, with EV registrations through business channels growing sharply since the rates were reduced. The rate is not zero indefinitely: the government has published a multi-year roadmap showing gradual annual increases, so the advantage narrows over time, but EVs remain well below combustion engine rates across the roadmap period.

What is salary sacrifice and how does the BIK rate affect it?

Salary sacrifice is an arrangement where you give up a portion of your gross salary in exchange for a benefit provided by your employer, in this case a car. Because the sacrifice reduces your gross pay, you pay less income tax and National Insurance on that portion of your earnings. The BIK tax is still due on the car, but if the BIK rate is low (as it is for EVs), the combined saving from reduced salary tax plus a small BIK bill can make the monthly cost of a new electric car very competitive compared with buying or leasing privately. Higher-rate taxpayers generally see the largest saving. Always model the numbers using the real current BIK rate from gov.uk and take independent financial advice if the sums are significant.

Does the type of charging or charging cable affect BIK?

HMRC has specific rules on employer-provided charging. If your employer installs a charge point at your workplace and you charge there, no additional BIK arises on the electricity used. Home charging is treated differently: if your employer reimburses you for electricity used to charge a company car at home, that reimbursement may be taxable depending on how it is structured. The physical cable itself does not attract a separate BIK charge when it is provided solely for charging the company car. Whether you use a Type 2 charging cable at a public or workplace charger, or a portable EV charger at home, the tax treatment follows the underlying electricity cost rules, not the hardware.

How will BIK rates on electric cars change in future tax years?

The government published a multi-year BIK rate roadmap so fleet managers and drivers can plan ahead. Rates for EVs are set to increase by a small number of percentage points each April for several consecutive tax years. The increases are gradual and pre-announced, which gives employers and employees reasonable visibility when structuring fleet agreements or salary sacrifice schemes over a two-to-three-year term. Even at the end of the published roadmap period, the EV rate is expected to remain below the rates applicable to petrol and diesel vehicles in equivalent CO2 bands. Check gov.uk annually in March for any Budget changes before a new tax year begins.

Frequently asked questions

What is the BIK rate for electric cars right now?

The rate changes each April and can also be adjusted at the Budget. Rather than quoting a figure that may be out of date, check the official HMRC Company Car Tax rates table on gov.uk. The table lists the percentage for zero-emission vehicles alongside all other CO2 bands for every current and upcoming tax year covered by the government roadmap.

Is a company EV always cheaper than a petrol equivalent?

On BIK tax alone, yes, because the EV rate is substantially lower. But the full cost comparison also depends on the list price of each vehicle (higher-priced EVs produce a larger taxable value), your income tax band, employer contributions, and any salary sacrifice structure. Run the numbers for your specific situation using gov.uk rates before committing to a vehicle.

Do I pay BIK tax if I only use the car for business miles?

BIK applies as soon as the car is available for private use, not just when you actually use it privately. If your employer restricts the car to business use only and enforces that restriction in writing, a BIK charge should not arise. In practice, most company cars are available for private use, so BIK applies for the full tax year regardless of actual private mileage driven.

Can my employer pay my BIK tax on my behalf?

Yes, some employers gross up and pay the BIK tax on behalf of employees as part of a remuneration package. If they do, the payment itself becomes a taxable benefit, so the overall tax position needs to be modelled carefully. This arrangement is more common in senior executive packages than in standard fleet schemes. Check with your employer's HR or payroll team.

What is the P11D value and how does it relate to list price?

The P11D value is the car's list price including factory-fitted options, delivery, and VAT, but excluding the first-year vehicle excise duty and any registration fee. It is the figure HMRC uses as the starting point for the BIK calculation. If your employer negotiates a large fleet discount, that does not reduce the P11D value; the calculation always uses the manufacturer's published list price.

Does charging equipment provided by my employer count as a separate BIK?

Employer-provided charge points installed at the workplace for employee use do not attract a separate BIK charge. Home charge points are subject to separate rules that have changed in recent years, so verify the current position on gov.uk or with a tax adviser. The cable itself (for example a Type 2 lead provided with the car) is not assessed separately as a BIK item.

Understanding BIK tax is one part of getting the most from a company EV. Once you know your liability, the next practical step is making sure you can charge wherever you need to: use our registration plate checker to find the right cable for your car, and explore the full range of advice in our EV guides covering home charging, portable chargers, and everything in between.