If you’re offering or receiving a company car in 2025, it’s crucial to understand how HMRC taxes this benefit. The rules can significantly impact your personal tax bill and employer costs—especially with the increasing focus on emissions and green incentives.
This guide outlines the key company car tax rules in 2025, covering benefit-in-kind (BIK) rates, electric vehicles, and planning tips.
1. What Is Company Car Tax?
Company car tax is a Benefit-in-Kind (BIK) tax payable by employees who receive a car for private use from their employer. Employers also pay Class 1A National Insurance on the benefit.
2. How Company Car Tax Is Calculated
The tax is calculated based on:
- Car’s P11D value (list price + delivery + optional extras)
- CO₂ emissions
- Fuel type (petrol, diesel, hybrid, or electric)
- BIK rate (%) set by HMRC
BIK Tax = P11D Value × BIK Rate × Employee’s Income Tax Rate
3. BIK Rates for 2025
For the 2025/26 tax year:
- Electric vehicles (EVs): 3%
- Plug-in hybrids: 5–14% depending on electric range
- Petrol & diesel cars: 15–37%, based on CO₂ emissions
Note: Diesel cars may incur a 4% surcharge unless RDE2-compliant.
4. Tax Example (2025)
Car: Petrol, 120g/km CO₂, P11D value: £25,000
- BIK Rate: 27%
- Employee’s tax rate: 20%
Tax payable = £25,000 × 27% × 20% = £1,350/year Employer also pays 13.8% NI on the £6,750 benefit = £931.50
5. Why EVs Remain Tax-Efficient
EVs continue to attract low BIK rates (3%), making them a popular choice for directors and staff.
Example: EV with £30,000 P11D
- BIK = £30,000 × 3% = £900
- Tax @ 20% = £180/year — very efficient
6. Fuel Benefit Charge
If the company pays for private fuel, an additional fuel benefit applies. In 2025/26, the fuel benefit multiplier is £27,800.
Example: Petrol car, 25% BIK rate:
- £27,800 × 25% × 20% = £1,390/year additional tax
Tip: Unless employees do a lot of private mileage, this is often not cost-effective.
7. Reporting and Deadlines
- Declare BIK on employee P11D forms by 6 July following the tax year
- Pay employer Class 1A NI by 22 July (electronic)
8. Planning Tips for Employers
- Opt for low-emission or electric vehicles
- Offer cash alternatives where appropriate
- Consider salary sacrifice arrangements for EVs
- Monitor total cost of ownership including tax and NI
How Eclat Accountancy Can Help
We help:
- Choose the most tax-efficient company car schemes
- Calculate employee and employer tax impacts
- Prepare accurate P11Ds and NI submissions
- Advise on electric vehicle salary sacrifice arrangements
Final Thoughts
With the Company Car Tax Rules in 2025 favouring green transport, now is a great time to review your car policy or benefit choices. Proper planning ensures minimal tax costs and maximum benefit.
Contact Eclat Accountancy for expert guidance on company cars, electric vehicle incentives, and tax-saving strategies.
