Calculate company car depreciation, Benefit-in-Kind tax, P11D value impact, employer Class 1A NIC, HMRC capital allowances and total ownership cost for electric company cars, plug-in hybrids, petrol cars and diesel fleet vehicles.
A company car has three different cost layers: accounting depreciation, company tax relief and employee Benefit-in-Kind tax.
Company car depreciation is the reduction in value of a vehicle while it is owned or used by a business. In the company accounts, depreciation spreads the cost of the vehicle over its useful life. Many UK businesses use a three to five year fleet replacement cycle because mileage, warranty cover, maintenance costs and residual values can change quickly after the early years of ownership.
For tax, the position is different. HMRC normally does not allow the accounting depreciation charge as a direct Corporation Tax deduction. Instead, company car capital allowances are calculated using the car’s CO₂ emissions, zero-emission status, new or used condition and the correct writing down allowance pool. This is why a company car tax calculator needs to show both depreciation and capital allowances separately.
Employees and directors also need to consider Benefit-in-Kind tax. Company car BiK is based on the P11D value, CO₂ emissions, electric range for plug-in hybrids and the employee’s Income Tax rate. It is not based on the current used value or the depreciated book value in the accounts. A car can depreciate heavily but still create the same taxable benefit calculation if the P11D value and BiK percentage remain unchanged.
Many UK directors, fleet managers and employees use this type of company car depreciation calculator to compare an electric company car, plug-in hybrid, petrol car, diesel car or cash car allowance. The cheapest purchase price is not always the cheapest overall choice. You should compare depreciation, EV BiK, employer NIC, Corporation Tax relief, fuel benefit, electricity policy and expected resale value before choosing a company vehicle.
Use the tabs below to calculate accounting depreciation, HMRC capital allowances, employee Benefit-in-Kind tax, employer Class 1A NIC and total company car cost.
These are the main rates and concepts used for UK company car depreciation, Benefit-in-Kind and capital allowance planning.
Fully electric company cars have a 4% Benefit-in-Kind percentage for 2026/27. This makes many EV company cars tax-efficient compared with petrol and diesel cars.
For plug-in hybrid company cars with 1–50g/km CO₂, the BiK percentage depends on electric-only mileage. Better electric range usually means a lower taxable benefit.
High-emission company cars can reach the maximum BiK percentage, which can make a petrol or diesel company car expensive for employees and directors.
The employer pays Class 1A National Insurance on the taxable value of company car and fuel benefits.
If the employer provides fuel for private use, the fuel benefit is calculated using this multiplier and the car’s BiK percentage.
New and unused zero-emission cars may qualify for 100% first-year allowance during the current extension period.
A company car can look cheap or expensive depending on which cost you focus on. The full picture includes depreciation, tax relief, BiK and employer costs.
When a business buys or leases a company car, the first cost most people notice is depreciation. A vehicle may lose thousands of pounds in market value during the first three years, especially if it is a high-value model or a fast-changing electric car. However, depreciation alone does not show the full tax position. For Corporation Tax, HMRC normally ignores the depreciation charge in the accounts and instead gives relief through capital allowances.
This is why two cars with similar purchase prices can have very different company car tax outcomes. A new zero-emission company car may qualify for 100% first-year allowance and a low EV BiK percentage, while a higher-emission petrol or diesel car may only receive special rate pool writing down allowance and create a much larger Benefit-in-Kind charge for the employee or director.
The P11D value is also important because company car BiK is based on the original list price, not the current market value or depreciated book value. This means a car can lose value quickly in the used market but still produce the same taxable benefit calculation each year. For employees, this makes the BiK percentage and personal tax band just as important as the car’s resale value.
For employers, the decision should include employer Class 1A National Insurance, capital allowance timing, lease rental treatment, private fuel benefit, electricity reimbursement policy and fleet replacement schedules. A proper company car total cost calculation should compare all of these items before deciding whether an EV company car, plug-in hybrid, petrol car, diesel car or cash allowance is the better option.
Company car tax becomes easier once you keep these calculations separate.
| Calculation | Who It Affects | Based On | Main Purpose |
|---|---|---|---|
| Accounting depreciation | The company accounts | Purchase cost, residual value, useful life and depreciation policy. | Shows the annual cost of using the vehicle in the profit and loss account. |
| Capital allowances | The company tax computation | CO₂ emissions, zero-emission status, new/used status and HMRC pool rules. | Gives tax relief against Corporation Tax instead of accounting depreciation. |
| Benefit-in-Kind | Employee or director | P11D value, CO₂ emissions, electric range and employee tax rate. | Calculates the personal tax cost of private use of the company car. |
| Class 1A NIC | Employer | Taxable benefit value multiplied by employer Class 1A NIC rate. | Shows the employer’s National Insurance cost of providing the benefit. |
Use each tab for a different decision: accounting, tax relief, employee tax or total ownership cost.
Use the purchase price for depreciation and capital allowances. Use P11D value for Benefit-in-Kind calculations and company car tax comparisons.
Enter official CO₂ emissions. For plug-in hybrids from 1–50g/km, add the electric range because it changes the BiK percentage.
Run the capital allowance and BiK tabs separately. One affects the company; the other affects the employee or director.
Use the total cost tab to combine depreciation, employee tax and employer NIC into a practical company car total cost comparison.
EVs normally have low BiK and strong first-year allowance potential, while higher-emission petrol and diesel cars can have much higher tax costs.
Keep invoices, lease documents, P11D values, CO₂ certificates, electric range details and board approval records for your fleet vehicle depreciation file.
These examples show why the cheapest purchase price is not always the cheapest company car choice.
A £45,000 EV has a taxable benefit of £1,800 at 4%. A 40% taxpayer pays £720 per year in BiK tax. The employer pays Class 1A NIC on the same taxable benefit. If the car is new and unused, the company may also receive 100% first-year allowance during the current extension period.
A petrol car with higher CO₂ emissions can have a much higher BiK percentage than an EV. It may also fall into the special rate pool if emissions exceed 50g/km, meaning tax relief on the company’s cost is spread slowly at 6% reducing balance.
A plug-in hybrid with 1–50g/km CO₂ is not automatically taxed like an EV. The electric range matters. A longer approved zero-emission range can reduce the Benefit-in-Kind percentage, so official manufacturer or lease company data is important.
A car allowance is simple but normally taxed like salary. A low-BiK electric company car can be more efficient for a higher-rate taxpayer, while a high-emission company car may make a cash allowance more attractive.
A low-BiK electric company car can be more tax-efficient than a cash car allowance, especially for higher-rate taxpayers. The best choice depends on P11D value, employee tax rate, annual mileage, charging costs, employer policy and expected depreciation.
Private fuel benefit can be expensive. If an employee receives employer-paid private fuel, the fuel benefit is calculated separately from the car benefit. In many cases, reimbursing private fuel accurately can be cheaper than accepting the fuel benefit charge.
Avoid these issues when building your fleet policy, comparing company cars or preparing tax workings.
Accounting depreciation is normally added back in the company tax computation. The company then claims capital allowances instead.
BiK is normally based on P11D value, not the car’s current used value or accounting book value.
Plug-in hybrids with 1–50g/km CO₂ need zero-emission mileage details to calculate the correct company car BiK percentage.
Most cars are excluded from Annual Investment Allowance and full expensing. Vans and commercial vehicles can be different.
The employee pays BiK tax, but the employer also has Class 1A NIC on the taxable benefit.
Fuel benefit can be expensive. Often it is better for employees to repay private fuel fully and accurately.
Use these internal links to help visitors compare depreciation, tax relief, BiK and vehicle choices.
Answers to common questions about company car depreciation, BiK, EV tax, P11D value, capital allowances and company car vs car allowance decisions.