How does company car tax work?

What company car tax is

A company car you can use for personal journeys is a perk from your job. HMRC calls this a benefit in kind. You pay Income Tax on its value to you, as if it were extra pay.

You do not pay the tax in one lump. HMRC usually changes your tax code so a little more tax comes out of each pay packet.

How the taxable value is worked out

The value depends mainly on:

• the car's list price (what it would cost to buy new)
• its CO2 emissions and fuel type
• for plug-in hybrids, how far it can go on electric power alone

HMRC sets a percentage for each emissions band, called the appropriate percentage. You multiply the list price by that percentage. The answer is the taxable benefit. You then pay tax on it at your own Income Tax rate.

The value is lower if you only have the car for part of the year, you pay something towards it, or it has low emissions.

Rates for 2026/27 (selected bands)

Plug-in hybrids registered from 1 January 2025 to 5 April 2028 that meet certain conditions are treated as having CO2 emissions of 1g/km.

Worked examples (2026/27)

Electric car, list price £40,000

• Taxable benefit: £40,000 x 4% = £1,600
• Basic rate taxpayer (20%): £320 a year
• Higher rate taxpayer (40%): £640 a year

Petrol car, list price £30,000, emits 170g/km or more

• Taxable benefit: £30,000 x 37% = £11,100
• Basic rate taxpayer (20%): £2,220 a year
• Higher rate taxpayer (40%): £4,440 a year

Free fuel for personal trips

If your employer pays for fuel you use on personal journeys, you pay a separate fuel benefit charge. For 2026/27, the car fuel benefit multiplier is £29,200. You multiply it by your car's appropriate percentage.

Example: a car at 37% gives a fuel benefit of £29,200 x 37% = £10,804. A basic rate taxpayer pays £2,160.80 for the year on top of the car tax.

What you need to do

Tell HMRC when:

• you get a company car or give one back
• your employer starts or stops paying for fuel for personal use

HMRC then updates your tax code. You can see your company car details in your Personal Tax Account. HMRC also has a company car and fuel benefit calculator to estimate your tax.

Scotland, Wales and Northern Ireland

The benefit value is worked out the same way across the UK. If you pay Scottish Income Tax, the tax on that value is charged at Scottish rates (from 19% to 48% in 2026/27), so your bill may differ from the examples above.

Related guides

• What are the car tax rates for 2026/27?
• Do you pay tax on an electric car?
• What does my tax code mean?
• What are the Income Tax rates?

Where these figures come from

• Tax on company benefits: company cars (GOV.UK)
• Work out the appropriate percentage for company car benefits (GOV.UK)
• CO2 emissions tables of rates (GOV.UK)
• Travel, mileage and fuel rates and allowances (GOV.UK)
• Personal tax account (GOV.UK)
• Scottish Income Tax (GOV.UK)