For UK professionals, a company car has long been a desirable perk. But in recent years, the accompanying tax bill has made it an increasingly expensive one. The culprit? Benefit-in-Kind (BiK) tax — a system that charges employees based on a vehicle’s list price and, crucially, its CO₂ emissions.
For drivers of petrol and diesel cars, this can mean losing a significant chunk of their salary each month simply for the privilege of their transport. But what if you could slash that bill to a fraction of what your colleagues are paying — all while driving a brand-new, high-performance vehicle?
Enter the electric car. Thanks to incredibly low BiK rates — deliberately set by the government to incentivise green transport — choosing an EV as your next company car isn’t just an environmental choice. It’s one of the smartest financial decisions you can make in 2025.
What Is Benefit-in-Kind (BiK) Tax?
Benefit-in-Kind is a tax on employees who receive perks from their employer beyond their salary. A company car that’s available for personal use is one of the most common.
The amount of tax you pay depends on three key factors:
- P11D Value: The car’s list price (including VAT, delivery charges, and options) minus road tax and registration fees.
- BiK Rate: A percentage set by HMRC based on the car’s CO₂ emissions — lower emissions mean lower rates.
- Personal Income Tax Rate: Whether you’re a basic (20%), higher (40%), or additional (45%) rate taxpayer.
Calculation: P11D Value × BiK Rate × Tax Rate = Annual Company Car Tax
For petrol and diesel cars, BiK rates can reach a painful 37%. For a zero-emission EV, however, the 2024/25 BiK rate is just 2%.
The Numbers Don’t Lie: EV vs Petrol Comparison
Let’s see what that looks like in real terms for a higher-rate (40%) taxpayer choosing a company car in 2025.
Car 1: The Electric Vehicle (e.g., Tesla Model 3)
- P11D Value: £43,000
- CO₂ Emissions: 0g/km
- BiK Rate: 2%
- Taxable Benefit: £43,000 × 2% = £860
- Annual Tax (40%): £344
- Monthly Cost: £28.67
Car 2: The Petrol Equivalent (e.g., BMW 3 Series Petrol)
- P11D Value: £40,000
- CO₂ Emissions: 140g/km
- BiK Rate: 33%
- Taxable Benefit: £40,000 × 33% = £13,200
- Annual Tax (40%): £5,280
- Monthly Cost: £440
Result: The electric driver saves a staggering £4,936 a year — that’s over £400 every month back in your pocket. The financial advantage is undeniable.
Why Businesses Win Too
The EV tax advantage isn’t just for employees — businesses benefit as well.
- National Insurance Savings: Employers pay Class 1A NICs on the same taxable value. In this case, just £860 for the EV vs £13,200 for the petrol car.
- Capital Allowances: Zero-emission vehicles qualify for a 100% First-Year Allowance, reducing corporation tax liability.
- Lower Running Costs: Electricity beats petrol for cost-per-mile, and EVs have fewer maintenance expenses — no exhausts, no oil, no problem.
Businesses adopting electric company cars not only reduce costs but also strengthen their sustainability credentials — a growing factor in corporate responsibility strategies.
What About Hybrids?
Plug-in hybrids (PHEVs) sit between petrol and full EVs. Their BiK rate depends on their electric-only range:
- Over 70 miles: 5%
- 30–69 miles: 8–12%
- Under 30 miles: 14%
Still cheaper than petrol, but not quite the ultra-low 2% of a full BEV.
Looking Ahead: Future BiK Rates
The government has confirmed EV BiK rates through 2028, providing stability for company car drivers.
| Tax Year | EV BiK Rate |
|---|---|
| 2025–2026 | 3% |
| 2026–2027 | 4% |
| 2027–2028 | 5% |
Even at 5%, our £43,000 Tesla Model 3 example still results in just £860 annual tax for a higher-rate taxpayer — a fraction of the petrol alternative.
The Verdict: A Clear Financial Winner
The tax system is intentionally designed to reward electric driving. The combination of ultra-low BiK rates, corporate savings, and everyday running-cost reductions make EVs the standout choice for both employers and employees.
Bottom line: Whether you’re an executive in Manchester or a business owner in Bristol, the EV Benefit-in-Kind advantage turns your next company car decision into one of the smartest financial moves you’ll ever make.
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