Understand Your Payslip, Tax Code and PAYE / Lesson 7 of 8
Benefits in kind and your P11D
The company car is free. The tax on it is not.
The short answer
- ✓ Benefits in kind are taxed through your tax code, not by a separate bill
- ✓ The company car charge is list price times a CO2 percentage, regardless of mileage
- ✓ Electric vehicles attract a far lower percentage
- ✓ P11D reporting lags, which can produce a double adjustment in the first year
What a benefit in kind is
Anything of value your employer gives you that is not cash. You are taxed on it because it is part of your reward package, and the tax is normally collected by reducing your tax code rather than by a separate bill.
| Benefit | Taxable? |
|---|---|
| Company car available for private use | Yes, often the largest single benefit |
| Private medical insurance | Yes |
| Interest-free or low-interest loan over the limit | Yes |
| Gym membership paid by the employer | Yes |
| Employer pension contributions | No |
| Workplace parking | No |
| One mobile phone for personal use | No |
| Annual staff event within the per-head limit | No |
How the company car charge works
The taxable value is the car's list price multiplied by a percentage set by its CO2 emissions. It has nothing to do with what the employer actually paid, and nothing to do with how much you drive it.
List price when new £32,000
CO2-based percentage 28%
---------
Taxable benefit £8,960
Your code drops by £8,960.
A higher-rate taxpayer pays 40% of that, about £3,584 a year.Electric vehicles sit at a very low percentage, which is why they dominate salary sacrifice car schemes. The gap between an EV and a petrol equivalent is usually far larger than people expect.
P11D or payrolled?
Employers either report benefits on a P11D after the year end, after which HMRC adjusts your code, or they payroll them, taxing the benefit through each payslip as it accrues. Payrolling is more accurate and avoids a lagging code adjustment.
The bit HMRC does not spell out
With P11D reporting there is a timing lag, and the lag creates a double hit. In the year you first receive a benefit, your code is adjusted to collect the current year's tax and the previous year's, because the previous year's was only reported afterwards. It feels like being taxed twice on the same car. You are not, but the cash flow in that one year is genuinely worse.
Common mistakes
- Thinking a company car is free. Compare the tax against a mileage claim in your own car.
- Assuming low mileage means low tax. The charge is based on list price and CO2, not use.
- Not telling HMRC when a benefit stops. The code keeps deducting for it.
- Ignoring the P11D. Check it: employer errors do happen.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your company car
List price incl. VAT and most options, less any one-off capital contribution.
HMRC sets a fixed figure each year (check the current car fuel benefit charge on gov.uk). The fuel benefit = this figure × your BIK %.
Your employer pays Class 1A NI on the total benefit. Confirm the current rate on gov.uk.
Annual company car tax
per month from your pay
- Taxable benefit (BIK)
- Fuel benefit
- Total benefit in kind
- Tax on car
- Tax on fuel
- Your tax - per month
Cost to your employer
Class 1A NI per year on the total benefit (in addition to your own tax).
Estimate only. The BIK % depends on the car's CO₂ emissions - electric cars are very low. Check your band on gov.uk.
Annual tax across CO₂ bands
How your annual tax changes as the BIK percentage rises - a low-emission or electric car can sit at the far left, a high-emission car at the right.
Based on a P11D of at . Your current band is highlighted in the table below.
| BIK % | Taxable benefit | Annual tax | Per month |
|---|---|---|---|
What this means for you
Do this next, in order
Estimates only - not financial or tax advice. Confirm figures on GOV.UK or with an adviser.
Compare saved cars
| Car | P11D | BIK | Annual tax | Per month | |
|---|---|---|---|---|---|
Key takeaways
- ✓ Benefits in kind are taxed through your tax code, not by a separate bill
- ✓ The company car charge is list price times a CO2 percentage, regardless of mileage
- ✓ Electric vehicles attract a far lower percentage
- ✓ P11D reporting lags, which can produce a double adjustment in the first year
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. The company car charge is based on what?
2. How is tax on a benefit in kind usually collected?
3. Your medical cover stopped last year but your code still deducts for it. What happens?
Sources
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