Company Car vs Car Allowance Calculator

BIK tax is the income tax you pay on the taxable value of having a company car available for personal use. The taxable value is calculated as a percentage of the car list price, with the percentage determined by the CO2 emissions and fuel type. You pay income tax on this value at your marginal rate (20%, 40% or 45%).

BIK rates are set by HMRC based on the car CO2 emissions in g/km and fuel type. Electric vehicles have the lowest rate at 2%. Rates increase with emissions: 1-50g/km is 2-14%, 51-75g/km is 15%, up to 37% for vehicles emitting 171g/km or more. Diesel cars that do not meet RDE2 standards may have a 4% surcharge.

A car allowance is a cash payment from your employer instead of providing a company car. It is treated as part of your salary, so you pay income tax and National Insurance on the full amount. For a 40% taxpayer receiving a £6,000 allowance, you keep roughly £3,600 after tax.

Electric company cars are highly tax-efficient in 2025/26 with a BIK rate of just 2%. A 40% taxpayer driving a £40,000 electric car pays only £320 per year in BIK tax. Combined with lower running costs and no fuel duty, electric company cars are often significantly cheaper than taking a car allowance.

For a company car, your main cost is BIK tax. The employer covers insurance, maintenance and depreciation. For a car allowance, include: finance or lease payments, insurance, maintenance, servicing, MOT, road tax, depreciation and fuel. Many people underestimate the true cost of running their own car.

Yes, you can use a company car for personal journeys. This is factored into the BIK calculation. If you only use the car for business and commuting, and it is not available for private use, you may be able to claim exemption from BIK. However, HMRC scrutinises such claims closely and you need clear evidence.

Diesel cars that do not meet the Real Driving Emissions Step 2 (RDE2) standard face a 4% BIK surcharge, capped at 37%. Most new diesel cars from 2018 onwards meet RDE2. Check the car V5C document or ask the dealer. The surcharge makes diesel company cars less attractive compared to petrol or hybrid alternatives.

When you leave your employer, the company car is returned. You stop paying BIK tax from the date you return it. If you have a car allowance instead, you keep your personal car but lose the allowance payments. Consider the implications for both scenarios when planning a job change.

Yes, many employers offer salary sacrifice car schemes where you give up part of your gross salary in exchange for a company car. This reduces your taxable income so you pay less income tax and NI. The BIK charge still applies but the net saving can be significant, especially for electric vehicles.

The list price (P11D value) is the car manufacturer recommended retail price including VAT, delivery charges, and any factory-fitted accessories. It does not include the first year registration fee or road tax. Discounts negotiated by your employer do not reduce the P11D value for BIK purposes.