Company car tax is another name for Benefit-in-Kind (BiK), which is a tax that employees pay on some benefits provided to them by their employer – including company cars provided for household private use as well as work travel. The BiK rate charged for this ‘perk’ or benefit is based on the CO2 emissions of the vehicle. As a result, BiK rates are lower on electric vehicles – which have no tailpipe emissions – and higher for petrol or diesel vehicles.

To calculate the Benefit-in-Kind value of your company car, multiply its P11D value – (the list price plus VAT, delivery, registration and any optional extras) by the vehicle’s BiK percentage banding, which is linked to its CO2 emission.

As no and low-emission vehicles qualify for lower BiK rates, electric and plug-in hybrid models are a more cost-effective choice than comparable petrol or diesel cars.

A company car is a vehicle provided by your employer for you to use, whereas a car allowance is a cash sum that is added to your annual salary. If you choose to lease or buy a vehicle using your cash allowance, you will not pay company car tax – but you must tax and insure the vehicle and cover maintenance and servicing costs. With a company car, insurance, servicing and maintenance – and the costs – are all covered by the employer.