Who pays road tax on a company car in the UK?

The company (as the registered keeper) pays the Vehicle Excise Duty (road tax). The company claims corporation tax relief on this cost. The employee who uses the company car for private purposes pays benefit-in-kind income tax based on the vehicle is P11D value and CO2 emissions. The company also pays Class 1A National Insurance on the benefit.

What is benefit-in-kind tax for company cars?

Benefit-in-kind (BiK) tax applies when an employee uses a company car for private purposes. It is calculated as a percentage of the vehicle is P11D value (list price including options). For 2026-27, BiK rates range from 3% for electric vehicles to 37% for high-emission vehicles. The employee pays income tax at their marginal rate on this amount.

Are company cars exempt from road tax?

No. Company cars are not exempt from road tax. They pay the same VED rates as private vehicles based on CO2 emissions. Zero-emission company cars (under 100g/km) cost GBP 0 road tax. The benefit-in-kind system replaces any road tax exemption that might otherwise exist.

How is company car tax calculated?

Company car tax has two parts: the company pays road tax (VED) based on CO2 emissions, and the employee pays benefit-in-kind tax. BiK is: P11D value x BiK percentage x employee is income tax rate. The BiK percentage depends on CO2 emissions and whether it is a zero-emission car. Pure electric cars have a BiK rate of just 3%.

Is it better for a company to buy or lease a company car?

Both buying and leasing have tax advantages. Purchasing: corporation tax relief on depreciation and running costs. Leasing: corporation tax relief on lease payments (subject to restrictions). The optimal choice depends on vehicle type, usage, and lease vs purchase finance terms. Both methods allow full deduction of road tax as a business expense.

UK Road Tax Company Cars 2026 — Business Vehicle Tax Guide

UK Road Tax Company Cars 2026

Company cars in the UK are taxed through a dual system: the business pays road tax (VED) as a registered keeper, and the employee pays benefit-in-kind (BiK) income tax for private use. Understanding this system helps businesses and employees manage company car costs. ITV.es and DGT.

How Company Car Tax Works

The Two-Part System

Part 1: Vehicle Excise Duty (Road Tax)

Paid by the company as registered keeper
Same rates as private vehicles
Deductible as a business expense
Corporation tax relief available

Part 2: Benefit-in-Kind (BiK) Tax

Paid by the employee for private use
Calculated on P11D value (list price)
Based on CO2 emissions percentage
Employee pays income tax on the benefit value

Vehicle Excise Duty for Companies

Same VED Rates Apply

Company vehicles pay the same VED rates as private vehicles:

| CO2 Band | First Year | Standard Rate |

|---------|-----------|----------------|

| 0g/km (Band A) | £0 | £0 |

| 1-100g/km | £0-30 | £180 |

| 101-150g/km | £130-225 | £180 |

| 151-175g/km | £285-335 | £180 |

| 176-200g/km | £375-435 | £180 |

| 200+g/km | £495+ | £180 |

Zero-emission company cars: £0 road tax forever.

Corporation Tax Relief

Deducting VED:

Road tax is a business expense
Deduct from taxable profits
Reduces corporation tax at 25% (standard rate)
GBP 180 road tax saves GBP 45 in corporation tax

Net cost after tax relief:

GBP 180 road tax × 75% = GBP 135 net cost
GBP 0 road tax = GBP 0 net cost

Benefit-in-Kind Tax

How BiK is Calculated

Formula:

BiK value = P11D value × BiK percentage

Employee tax = BiK value × income tax rate

P11D value:

Vehicle list price (including options)
Does not include registration fees or first-year tax
Used for benefit-in-kind calculations

2026-27 BiK Rates

| CO2 Emissions | BiK Rate (%) |

|--------------|--------------|

| 0g/km (electric) | 3 |

| 1-50g/km (with electric range) | 3-12 |

| 51-75g/km | 13 |

| 76-94g/km | 15 |

| 95-99g/km | 16 |

| 100-105g/km | 17 |

| 106-110g/km | 18 |

| 111-115g/km | 19 |

| 116-120g/km | 20 |

| 121-130g/km | 21 |

| 131-140g/km | 23 |

| 141-150g/km | 24 |

| 151-165g/km | 26 |

| 166-175g/km | 28 |

| 176-185g/km | 30 |

| 186-200g/km | 33 |

| 201-225g/km | 35 |

| 226-255g/km | 37 |

| Over 255g/km | 37 |

BiK Tax Examples

Example 1: Electric Company Car (0g/km)

P11D value: GBP 40,000
BiK rate: 3%
BiK value: GBP 40,000 × 3% = GBP 1,200
Higher rate taxpayer (40%): GBP 1,200 × 40% = GBP 480/year
Plus GBP 0 road tax
Total annual employee tax: GBP 480

Example 2: Diesel SUV (175g/km)

P11D value: GBP 55,000
BiK rate: 28%
BiK value: GBP 55,000 × 28% = GBP 15,400
Higher rate taxpayer (40%): GBP 15,400 × 40% = GBP 6,160/year
Road tax: GBP 180 (GBP 135 after tax relief)
Total annual employee tax: GBP 6,295

Company Car vs Cash Allowance

The Company Car Decision

For the employee:

| Factor | Company Car | Cash Allowance |

|--------|-------------|----------------|

| BiK tax | Yes, if private use | No |

| Road tax | Company pays | You pay if own car |

| Insurance | Company pays | You pay |

| Maintenance | Company pays | You pay |

| Flexibility | Limited to company car | Full choice |

Typical cash allowance:

GBP 3,000-8,000/year forgo company car
Use for your own vehicle purchase/lease
Pay your own road tax, insurance, maintenance

Break-even calculation:

GBP 6,000 cash allowance vs company car worth GBP 10,000
You gain GBP 4,000 before your own costs
Road tax GBP 180 + insurance GBP 600 + fuel GBP 1,500 = GBP 2,280
Net benefit of taking cash: GBP 1,720

Fleet Management Tax Tips

Minimising Fleet Tax Costs

Choose low BiK vehicles:

Pure electric vehicles: 3% BiK
Plug-in hybrids: 13-16% BiK
Low-emission conventional: 16-21% BiK

Avoid high-emission vehicles:

200+ g/km vehicles attract 33-37% BiK
High P11D value + high BiK = very expensive for employee
Consider whether performance justifies cost

Tax-Efficient Fleet Strategy

Electric-first approach:

All company cars could be pure electric
3% BiK rate is very low
GBP 0 road tax
Employees pay minimal BiK tax

For commercial vehicles:

Vans pay flat rate road tax: GBP 275/year
Corporation tax relief at 25%
Net cost: GBP 206/year

Employer National Insurance

Class 1A NIC

Employers must pay Class 1A National Insurance:

13.8% on the BiK value
On all company cars provided for private use

Example:

BiK value of GBP 15,400
Class 1A NIC: GBP 15,400 × 13.8% = GBP 2,127
This cost is in addition to the employee is BiK tax

This makes high BiK vehicles very expensive for employers.

Key Takeaways

1. Companies pay VED on company cars at standard rates

2. Employees pay BiK tax for private use of company car

3. BiK rates range from 3% (electric) to 37% (high emissions)

4. Class 1A NIC adds 13.8% employer cost on BiK value

5. Electric company cars are tax-efficient for both parties

6. Road tax is deductible for the company as a business expense

7. Consider cash vs car — high earners may prefer cash allowance

8. Fleet tax strategy should prioritise low BiK vehicles

The combination of VED, BiK, and employer NIC makes company car tax significantly more complex than private vehicle tax. An electric vehicle strategy minimises costs for both employer and employee.

Official Resources: ITV.es - ITV Booking | DGT - Direccion General de Trafico