Tax on Company Cars and Fuel

If you provide company cars to employees (including yourself as a director), you'll pay tax on this benefit. The amount depends on the car's list price, CO2 emissions, and fuel type. Electric and low-emission vehicles attract much lower tax charges than petrol or diesel cars.

What counts as a company car benefit

You're providing a taxable company car benefit if an employee has use of a car for private journeys. Private use includes:

• Commuting between home and their normal place of work
• Personal trips at weekends or evenings
• Any non-business travel

Journeys to temporary workplaces don't count as private use. If a car is only used for business travel, there's no benefit-in-kind charge.

How company car tax is calculated

The tax charge is based on the car's taxable value, not simply what you paid for it. The taxable value depends on three main factors:

1. The car's list price – the manufacturer's published price when the car was new, including VAT and any accessories fitted before first registration

2. CO2 emissions – lower emissions mean a lower tax charge

3. Fuel type – electric, hybrid, petrol, or diesel

HMRC uses these factors to calculate a percentage of the list price. This percentage is called the appropriate percentage or benefit-in-kind (BIK) rate. The company pays employer's National Insurance on this value, and the employee pays income tax on it through their tax code or Self Assessment.

Electric and low-emission vehicles

Electric cars attract significantly lower benefit-in-kind charges than petrol or diesel vehicles. For the 2025/26 tax year, the appropriate percentages favour zero and low-emission vehicles.

For fully electric cars (0g/km CO2), the BIK rate is much lower than for conventional vehicles. This makes electric company cars a tax-efficient choice for both employers and employees.

Hybrid and plug-in vehicles also benefit from reduced rates, but the actual percentage depends on:

• The car's electric range (how far it can travel on battery power alone before needing to recharge)
• Its CO2 emissions figure

For cars with approved CO2 emissions between 1-50g/km, you'll need to know the zero emission mileage (also called electric range). You can find this on:

• The vehicle's certificate of conformity, if you own the car
• Documentation from your leasing company or fleet provider

Diesel vehicles

Diesel cars are subject to a supplement on their BIK rate unless they meet the Real Driving Emissions 2 (RDE2) standard. This is also known as the Euro 6d standard.

When calculating the benefit:

• Use fuel type 'F' for diesel cars meeting Euro 6d/RDE2
• Use fuel type 'D' for other diesel cars (these attract a higher charge)

You can check whether a specific vehicle meets these standards through the vehicle's documentation or manufacturer information.

Company fuel benefit

If you also pay for fuel that employees use for private journeys, this creates a separate taxable benefit called the fuel benefit charge.

This is an additional charge on top of the car benefit itself. The fuel benefit uses the same appropriate percentage as the car benefit, but applies it to a set figure published by HMRC each tax year.

The fuel benefit charge can be substantial. In many cases, it's more tax-efficient for employees to reimburse the company for private fuel rather than having the company pay for all fuel.

There's no fuel benefit charge for fully electric cars, since electricity isn't classed as a fuel for these purposes.

Part-year adjustments

The taxable value can be reduced if the car is unavailable to the employee for part of the tax year. This might happen because of:

• A mechanical fault or accident requiring extended repairs
• The car being returned to the leasing company
• A gap between one company car and receiving a replacement

The reduction is proportional to the time the car wasn't available.

Working out the figures

You can calculate the exact taxable value in several ways:

Use HMRC's online calculator: The company car and car fuel benefit calculator works out the figures for you. You'll need the car's list price, CO2 emissions, fuel type, and any periods when the car wasn't available.

Use payroll software: Commercial payroll software includes company car calculations. This is the most efficient method if you're running payroll yourself.

Calculate manually: HMRC provides form P11D working sheet 2 for manual calculations, though this is more time-consuming.

To check a car's CO2 emissions, use HMRC's CO2 vehicle checker tool.

Reporting and paying

You must report company car and fuel benefits to HMRC on form P11D after the end of each tax year (by 6 July). You'll also need to pay employer's Class 1A National Insurance on the total value of benefits provided.

Alternatively, you can register the benefit through your payroll and pay tax in real-time throughout the year (known as payrolling benefits). This removes the need to submit P11D forms for those benefits.

Employees pay income tax on the benefit at their marginal rate (20%, 40%, or 45% depending on their total income). This is usually collected through an adjustment to their tax code.

Sources

• Calculate tax on employees' company cars
• Check a car's CO2 emissions
• PAYE: car and car fuel benefit (P11D working sheet 2)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.