Company Car Tax Explained: What You Need to Know

Company cars have long been seen as a brilliant perk for employees — a practical benefit that also says, “we value you.” And it’s not just a nice extra. Handled well, company cars can also bring some smart tax advantages for both employers and staff.

So, whether you’re new to this or just looking to refresh your knowledge, here’s a clear and straightforward guide to how company cars work, what the tax implications are, and how to get the most out of the scheme.

What Is a Company Car?

Put simply, a company car is a vehicle provided to an employee as part of their job. It can be leased or owned by the business and is typically offered to employees who travel a lot — whether that’s for meetings, site visits or logistics.

It’s not just for getting from A to B either — company cars can boost morale, support recruitment, and even act as mobile adverts when branded correctly.

Lease or Own?

Leased Vehicles

  • Lower upfront costs — and you’ll often get maintenance and servicing bundled in
  • Access to newer models — you can update vehicles more regularly
  • More flexible — ideal for keeping things modern and hassle-free

Owned Vehicles

  • Bigger upfront investment — but once it’s paid, it’s paid
  • You own the asset — it becomes part of your balance sheet
  • More admin — you’ll need to handle servicing, insurance and depreciation

The best route depends on your budget, how you plan to use the vehicles, and whether you value convenience or control more.

Perks for Employers

  • Staff Retention & Recruitment – A car as part of the package can make a big difference to someone choosing whether to join or stay
  • Less commuting stress – When staff aren’t paying out of pocket for travel, they’re more focused on the job
  • Marketing & Branding – Branded vehicles are a rolling advert for your business

Perks for Employees

  • Money Saved – No fuel bills, no insurance payments, no servicing to worry about
  • Better Cars – Company cars are often newer and higher-spec than what people might buy themselves
  • Personal Use (Sometimes) – Many businesses allow reasonable personal use, which adds another layer of benefit

Company Car Tax: The Basics

Here’s where it gets technical, but stick with us — it’s not as bad as it sounds.

Company cars are considered a benefit-in-kind (BIK). That means they count as a taxable perk, like private healthcare or gym memberships.

The Two Key Tax Factors:

  1. P11D Value (List Price) – The car’s value, including VAT, delivery and any extras
  2. CO2 Emissions – The lower the emissions, the lower the tax

For example, an employee with a high-emission car will pay more tax than someone with a low-CO2 hybrid.

How BIK Tax is Calculated

To work out how much tax your employee pays, HMRC applies a percentage (based on emissions) to the car’s P11D value. That gives the “taxable benefit” amount.

Example:

  • P11D value = £30,000
  • CO2 tax band = 20%
  • Taxable benefit = £6,000
  • If the employee’s income tax rate is 20%, they’ll pay £1,200/year in tax for that car

So if you go for an electric or low-emission car, you’re keeping their tax bill (and your NICs) down.

Don’t Forget: Employer NICs

Employers must also pay National Insurance Contributions on the BIK provided. The rate is currently 13.8% of the taxable benefit — so, again, lower-emission cars = lower tax.

Green Cars = Lower Costs

Here’s where you can really unlock the savings:

  • EVs have a BIK rate as low as 2% (2023/24 tax year)
  • No road tax on many EVs
  • Government grants available, like the Plug-in Car Grant
  • Install EV charge points at work and get tax breaks too

This is why more and more businesses are switching to hybrid and electric company fleets — it’s a no-brainer financially, and a win environmentally.

Final Thoughts

Offering company cars can do a lot for your team — and if you’re smart about it, it doesn’t have to cost the earth (financially or environmentally).

By going green, leasing efficiently, and understanding how BIK works, you’ll reduce tax for your staff, cut your own National Insurance bill, and boost your brand’s profile — all in one move.

Need help with company car tax or looking to go electric with your fleet?
Feel free to drop us a message — we’re always happy to help you steer in the right direction