HMRC Implements New Benefit-in-Kind Tax Rates, Affecting Thousands of Company Car Drivers

HM Revenue & Customs (HMRC) has introduced new Benefit-in-Kind (BiK) tax rates effective this week, impacting thousands of company car drivers across the UK. These changes affect drivers of petrol, diesel, and electric vehicles alike, with many facing higher tax charges under the revised scale.

The updated BiK rates, which came into force on April 6, signal a significant shift in how employers report and collect taxes on company car benefits. By April 6, 2027, all employers must transition to payroll reporting for benefits in kind, moving away from the traditional annual P11D and P11D(b) forms. This means taxable benefits will be processed in real-time through payroll each pay period.

This transition demands that employers calculate the cash equivalent of each benefit and reflect it on employees’ payslips. Taxes and National Insurance contributions (NICs) will need to be deducted accordingly, with details submitted via the Full Payment Submission (FPS). Employees will incur income tax on these benefits during each pay cycle rather than through end-of-year PAYE adjustments or self-assessment processes. Employers will also be required to pay Class 1A NICs in real time rather than annually post-tax year.

The revised BiK tax percentages vary based on the vehicle’s CO2 emissions and electric mileage range. For zero emissions vehicles, the tax rate has increased from 3% to 4%. Lower emission cars with electric ranges above 130 miles also see an increase from 3% to 4%, while vehicles with shorter electric ranges experience incremental rises across various brackets, ranging from 6% up to 16%. Mid-range emission vehicles (51-74 g/km CO2) have all increased by 1%, while many higher emission bands remain unchanged, with rates holding steady between 21% and 37%, depending on emissions.

Drivers with vehicles emitting 155g/km CO2 or more will continue to be taxed at the top marginal rate of 37%.

These adjustments reflect HMRC’s ongoing strategy to encourage low-emission vehicles while ensuring company car benefits are taxed fairly. Employers must prepare operationally and financially for these changes to ensure compliance and smooth payroll processing.