BIK means benefit in kind: a non-cash perk from an employer, such as a company car, private medical insurance or a cheap loan. The employee pays Income Tax on its taxable value, usually through a lower tax code or payroll. The employer pays Class 1A National Insurance at 15%. Company car BIK for 2026/27 runs from 4% of list price for a zero-emission car up to 37% for the most polluting. Unless benefits are payrolled, they are reported on the P11D by 6 July, with Class 1A paid by 22 July.
How BIK is taxed
The benefits code in the Income Tax (Earnings and Pensions) Act 2003 gives most benefits a "cash equivalent". That figure is added to the employee's taxable income and taxed at their marginal rate.
- Employee: Income Tax. HMRC usually collects it by reducing the tax code. Gov.uk's own example: medical insurance worth £1,570 reduces a £12,570 allowance to £11,000, giving code 1100L. Alternatively, the employer payrolls the benefit and taxes it through each payslip;
- Employer: Class 1A NIC. 15% of the cash equivalent for 2026/27. The employee does not normally pay National Insurance on a benefit in kind. The exception is anything paid in cash or easily convertible to cash, which is treated as earnings.
As an illustration, a £1,570 benefit costs a basic rate taxpayer £314 in tax (20%) and a higher rate taxpayer £628 (40%). The employer pays £235.50 in Class 1A.
Company car BIK rates for 2026/27
The car benefit is the car's list price multiplied by the "appropriate percentage" in section 139 ITEPA. That percentage depends on CO2 emissions and, for plug-in hybrids, electric range. For 2026/27 the bands up to 74g/km are one percentage point higher than in 2025/26. From 75g/km upwards the scale is unchanged.
| CO2 (g/km) | Electric range | 2026/27 | 2025/26 |
|---|---|---|---|
| 0 | n/a | 4% | 3% |
| 1–50 | 130 miles or more | 4% | 3% |
| 1–50 | 70–129 | 7% | 6% |
| 1–50 | 40–69 | 10% | 9% |
| 1–50 | 30–39 | 14% | 13% |
| 1–50 | under 30 | 16% | 15% |
| 51–54 | n/a | 17% | 16% |
| 75 and above | n/a | 21% plus 1 point per 5g/km over 75, capped at 37% | Same scale, also capped at 37% |
Bands from 55 to 74g/km run from 18% to 21%, and the 37% maximum is reached at 155g/km. Cars propelled solely by diesel carry a 4 percentage point supplement unless they meet the Euro 6d (RDE2) standard, subject to the maximum percentage (section 141 ITEPA). All diesel cars first registered before 1 September 2017 pay it. HMRC's company car calculator is the safe way to check a specific car.
Illustration. An electric car with a £40,000 list price has a 2026/27 benefit of £1,600 (4%). That is £320 of tax for a basic rate taxpayer or £640 for a higher rate taxpayer, plus £240 Class 1A for the employer. For more on electric cars, see electric car tax benefits.
Fuel, vans and other common benefits
- Car fuel. If the employer pays for private fuel, the charge is the car's appropriate percentage applied to £29,200 for 2026/27 (£28,200 in 2025/26). Electricity is not a fuel for this purpose;
- Vans. A flat £4,170 for 2026/27 (£4,020 in 2025/26), plus £798 van fuel benefit if private fuel is provided. Zero-emission vans have a nil charge, and there is no charge where private use is restricted to commuting and insignificant other use;
- Beneficial loans. Taxable only if the total outstanding exceeds £10,000 at any time in the year. The benefit is the difference between the interest paid and HMRC's official rate;
- Living accommodation. Taxable unless an exemption applies, such as accommodation provided so the employee can do the job. The calculation changes where the property cost more than £75,000;
- Medical insurance. Normally taxable on the premium cost.
Benefits that are tax-free
Some benefits carry no BIK at all, including meals in a staff canteen, hot drinks and water at work, one mobile phone, and workplace parking. An annual party or similar function is exempt if it is open to staff generally and costs no more than £150 a head in total, including VAT, transport and accommodation (section 264 ITEPA). If it costs £151 a head, the whole amount is taxable, not just the excess.
Reporting BIK: P11D now, payrolling from April 2027
For 2026/27 an employer either payrolls benefits or reports them after the year end:
- P11D. For each employee with benefits that were not payrolled, by 6 July (regulation 85 of the PAYE Regulations says "before 7th July"). Employees must be given a copy of the information by the same date;
- P11D(b). Declares the total Class 1A due. It is required even if every benefit was payrolled;
- Class 1A payment. By 22 July, or 19 July by cheque.
Payrolling is becoming compulsory in phases. HMRC's published plan is that from 6 April 2027, Income Tax and Class 1A on company cars, car fuel, vans, van fuel and employer-provided medical benefits must be reported and paid through payroll in real time. Most other benefits follow from April 2028. HMRC's phasing guidance says loans and accommodation will stay voluntary, while its policy summary says this will be confirmed later. Employers who still rely on P11Ds should be testing payroll software now. Our P11D guide covers the current process and penalties.
HMRC's sources are its appropriate percentage tables (480 Appendix 2) and the phased introduction of mandatory payrolling.
Acumon prepares P11Ds, sets up payrolled benefits and advises on car and benefit policies through its employment tax team, with delivery through PAYE services. If your company car fleet is still mostly petrol or diesel, the 2026/27 percentages make that choice costly for both employer and employee.