Company car benefit in kind: how it is worked out

The taxable benefit of a company car is its list price plus qualifying accessories, less up to £5,000 of capital contributions, multiplied by an appropriate percentage set by the car’s CO2 emissions, then reduced for days it was unavailable and for payments the employee makes for private use. The steps are in section 121 of ITEPA 2003, and for 2026 to 2027 the percentage runs from 4% for a zero emission car to a maximum of 37%.

When does a company car create a benefit at all?

Section 114 of ITEPA 2003 applies the car benefit rules where a car is made available, without transfer of ownership, to an employee or a member of their family or household, by reason of the employment, and is available for private use. Section 118 treats a car as available for private use unless the terms of provision prohibit it and it is not in fact used privately. Private use means anything other than business travel, and GOV.UK confirms that commuting counts as private use.

So the charge depends on availability, not on how much the car is actually driven privately. A car kept at the employee’s home over the weekend is available even if it never moves. The main exceptions are:

• Pool cars under section 167: used by more than one employee, not ordinarily used by one to the exclusion of others, any private use merely incidental, and not normally kept overnight at or near an employee’s home.
• Business only cars, where private use is prohibited and the employer checks it does not happen.

From 2030 to 2031, the Finance Act 2026 extends the rules to some employee car ownership schemes where ownership is transferred but the arrangement restricts private use or keeps the employer as registered keeper. For arrangements entered into before 6 April 2030, that change waits until 2032 to 2033 unless they are varied or renewed.

What are the steps in the calculation?

Section 121(1) and chapter 12 of HMRC’s guide 480 set out the method:

1. Find the price of the car.
2. Add the price of qualifying accessories.
3. Deduct capital contributions made by the employee, up to £5,000.
4. Find the appropriate percentage.
5. Multiply the result of step 3 by that percentage.
6. Reduce for days the car was unavailable.
7. Deduct payments the employee made for private use.
8. Adjust if the car is shared.

Step 1: what counts as the list price?

Under sections 122 and 123 the price is the manufacturer’s, importer’s or distributor’s published list price for the car sold singly in the UK on the day before its first registration. It includes standard accessories, VAT and delivery charges, but not the first registration fee. HMRC’s guide at paragraph 12.4 makes the key point: it is not the dealer’s advertised price or the price actually paid, so fleet discounts and cashbacks do not reduce it. A second hand car uses its list price when new. If there is no list price, a notional price is used under section 124. There is no upper price cap; the old £80,000 cap ended after 2010 to 2011.

Step 2: which accessories are added?

Accessories attached to the car and provided because of the employment are added (section 125). Non standard extras fitted when the car is first made available are added at their list price. Later accessories are added if their price is more than £100, and then for the whole tax year even if fitted part way through. Accessories necessarily provided for the duties, such as a tow bar needed for work, mobile phones and equipment for a disabled driver are excluded.

Step 3: how do capital contributions help?

If the employee pays towards the cost of the car or its accessories, section 132 deducts the total paid, up to £5,000, for that year and every later year the employee has the car. The deduction does not pass to a different employee who later takes the car.

How is the appropriate percentage found?

For cars first registered from 1 January 1998, the percentage comes from the approved CO2 figure, shown on the V5C for cars registered in the UK from 1 March 2001 (sections 133 to 142). Cars first registered from 6 April 2020 use the WLTP figure. HMRC’s ready reckoner for 2026 to 2027 includes:

CO2 emissions (g/km)	Appropriate percentage 2026 to 2027
0	4%
1 to 50 (depends on electric range)	4% to 16%
51 to 54	17%
70 to 74	21%
75 to 79	21%
100 to 104	26%
110 to 114	28%
155 and above	37%

Above 75g/km the rate rises by one point for each 5g/km, rounding the CO2 figure down to the nearest 5, up to the 37% maximum in section 139(3). Diesel cars that do not meet the Euro 6d (RDE2) standard take a 4 percentage point supplement under section 141, still subject to the overall maximum. The CO2 figure at first registration applies for the life of the car. Rates for electric and plug in hybrid cars are covered in electric company cars: benefit in kind rates.

How do unavailability and private use payments reduce the charge?

Under section 143 a car is unavailable on days before it is first provided, after it is withdrawn, and during any period of 30 or more consecutive days when it is not available. The benefit is reduced pro rata. A gap of less than 30 days gives no reduction, and a replacement car provided during a short gap is not separately charged unless it is materially better (section 145).

Under section 144, payments the employee is required to make as a condition of private use reduce the benefit, and can reduce it to nil. They must be for private use of the car itself; paying for fuel or insurance does not count. Since 2017 to 2018 HMRC accepts payments made by 6 July after the end of the tax year. Do not confuse these with capital contributions at step 3. Fuel is a separate charge, explained in the car fuel benefit charge.

What if a car is shared?

Where a car is available for private use by two or more employees of the same employer at the same time, section 148 calculates the benefit for each employee separately and then reduces it on a just and reasonable basis. The total charged cannot exceed the charge for one employee with sole use. An employee with two cars available at once has two separate charges.

How does a worked example look?

Illustration only. A petrol car with a list price of £30,000 and £1,000 of extras fitted at the outset has CO2 of 112g/km. The employee contributed £2,000 towards it and pays £50 a month for private use. The car is available all year.

Step	Amount
List price plus accessories	£31,000
Less capital contribution	(£2,000)
Interim sum	£29,000
Multiplied by 28% (110 to 114g/km)	£8,120
Less private use payments (12 x £50)	(£600)
Cash equivalent	£7,520

A higher rate taxpayer in England pays 40% of £7,520, which is £3,008. The employer pays Class 1A National Insurance at 15% for 2026 to 2027, which is £1,128. Our page on Class 1A National Insurance covers the employer side.

How is the benefit reported?

Unless the employer payrolls the benefit, it reports company cars on form P11D and the Class 1A on form P11D(b) by 6 July after the tax year, gives the employee a copy by the same date, and pays the Class 1A by 22 July (19 July by cheque). Employers must keep a record of each car’s list price. Car benefit provided through salary sacrifice must always be reported. See benefits in kind and P11Ds and payrolling benefits in kind.

What mistakes come up?

• Using the price paid. Discounts do not reduce the list price.
• Treating commuting as business use. It is private use.
• Missing later accessories. Any accessory over £100 added during the year counts for the whole year.
• Claiming unavailability for short gaps. Only 30 or more consecutive days count.
• Calling fuel or insurance contributions private use payments. They do not reduce the car benefit.
• Using the wrong year’s table. Percentages change each April.

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Related Accountapedia entries

• Reducing company car benefit with contributions
• Car allowance or company car: the tax comparison
• Electric car salary sacrifice schemes
• Vehicle excise duty and the expensive car supplement
• Company van benefit and van fuel benefit
• Pool cars: the conditions for no tax charge

Related cover: Employers' liability insurance is a legal requirement for most employers. Ask for a quote or call 01795 841 310.

Sources

• legislation.gov.uk: Act 2003 c. 1, section 114
• legislation.gov.uk: Act 2003 c. 1, section 118
• GOV.UK: Tax on company cars
• legislation.gov.uk: Act 2003 c. 1, section 167
• legislation.gov.uk: Act 2026 c. 11, section 17
• legislation.gov.uk: Act 2003 c. 1, section 121
• GOV.UK: How to work out the benefit of a company car 480 chapter 12
• GOV.UK: Company car benefit the appropriate percentage 480 appendix 2
• legislation.gov.uk: Act 2003 c. 1, section 139
• legislation.gov.uk: Act 2003 c. 1, section 141

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.