🚗 Car Allowance Calculator
UK Tax, NI & Take-Home Calculator for 2025-26
📊 Understanding Car Allowance in 2026
A car allowance calculator helps UK employees determine their actual take-home pay from a company car allowance in 2026. Unlike a company car benefit, car allowances are paid as cash additions to your salary—meaning you'll pay both Income Tax and National Insurance on the full amount. This calculator is essential for employees choosing between a company car and cash alternative, HR professionals structuring remuneration packages, and anyone negotiating a new job offer that includes vehicle benefits. By understanding the true net value of your car allowance after deductions, you can make informed decisions about whether to take the cash or opt for a company vehicle instead.
📝 How to Use the Car Allowance Calculator
- Enter your annual base salary – Input your gross yearly salary before any car allowance is added. This is your contracted salary amount, typically found on your payslip or employment contract.
- Enter your annual car allowance – Input the full annual car allowance amount offered by your employer. Common UK car allowances range from £4,000 to £10,000 per year depending on your role and seniority.
- Select your tax code – Choose 1257L for the standard personal allowance (£12,570), or select "Custom" if you have a different tax-free allowance. Your tax code appears on your payslip.
- Choose your student loan plan – If you have a student loan, select your repayment plan. Plan 1 applies to English/Welsh loans before 2012, Plan 2 for loans after 2012, Plan 4 for Scottish loans, and Plan 5 for postgraduate loans.
- Enter pension contribution percentage – Input your employee pension contribution rate if you have salary sacrifice pension. This reduces your taxable income and affects your take-home calculation.
- Click "Calculate Take-Home" – View your results showing net car allowance, tax/NI deductions, full salary breakdown, and retention rate percentage.
💡 Pro Tip
Common mistake to avoid: Don't confuse gross car allowance with take-home value. A £6,000 allowance typically only puts £3,500-£4,200 in your pocket after tax and NI, depending on your tax band. Always calculate the net value before making company car vs allowance decisions.
📐 Car Allowance Formula & Calculation Method
Total Taxable Income
Your car allowance is added to your salary and the combined total (minus pension contributions) is subject to Income Tax. The personal allowance (£12,570 for 2025-26) is deducted before tax is calculated.
Income Tax on Car Allowance
The tax rate applied to your car allowance depends on your total income. If your salary plus allowance falls in the higher rate band (over £50,270), you'll pay 40% tax on the portion above this threshold.
National Insurance Contribution
Employee National Insurance is charged at 8% on earnings between £12,570 and £50,270, and 2% on earnings above the upper threshold. Where: NI = National Insurance contribution; 8% = main rate; 2% = additional rate.
Net Car Allowance (Take-Home)
This is the actual amount added to your bank account from the car allowance. The retention rate shows what percentage of your gross allowance you keep after deductions.
📊 Car Allowance Worked Examples
Example 1: Basic Rate Taxpayer (£35,000 Salary + £5,000 Allowance)
Scenario: Sarah is a sales representative earning £35,000 base salary. Her employer offers a £5,000 annual car allowance instead of a company vehicle.
Input Values: Base Salary: £35,000 | Car Allowance: £5,000 | Tax Code: 1257L | No student loan | 5% pension
Calculation:
- Total Gross: £40,000
- After 5% Pension (£2,000): £38,000 taxable
- Personal Allowance: £12,570
- Taxable Income: £25,430
- Income Tax (20%): £5,086
- National Insurance: £2,034
- Tax on Car Allowance portion: ~£1,000 (20%)
- NI on Car Allowance: ~£400 (8%)
Result: Sarah's £5,000 car allowance gives her approximately £3,600 take-home (72% retention rate)
Example 2: Higher Rate Taxpayer (£55,000 Salary + £7,500 Allowance)
Scenario: James is a regional manager with a £55,000 salary. He's been offered a £7,500 car allowance as an alternative to a company BMW 3 Series.
Input Values: Base Salary: £55,000 | Car Allowance: £7,500 | Tax Code: 1257L | No student loan | 6% pension
Calculation:
- Total Gross: £62,500
- After 6% Pension (£3,750): £58,750 taxable
- Basic Rate Tax (on £37,700): £7,540
- Higher Rate Tax (on £8,480): £3,392
- Tax on Car Allowance: ~£3,000 (40% marginal)
- NI on Car Allowance: ~£150 (2% at higher rate)
Result: James's £7,500 allowance provides approximately £4,350 take-home (58% retention rate due to 40% tax band)
Example 3: With Student Loan (£42,000 Salary + £6,000 Allowance)
Scenario: Emma is a marketing executive earning £42,000. She has a Plan 2 student loan and receives a £6,000 car allowance.
Input Values: Base Salary: £42,000 | Car Allowance: £6,000 | Tax Code: 1257L | Plan 2 Student Loan | 5% pension
Calculation:
- Total Gross: £48,000
- After 5% Pension (£2,400): £45,600 taxable
- Income Tax (20%): £6,606
- National Insurance (8%): £2,642
- Student Loan (9% over £27,660): £1,615
- Tax + NI on Car Allowance: ~£1,680
Result: Emma's £6,000 allowance leaves approximately £4,320 take-home (72% retention), but total salary deductions include student loan repayments
📊 UK Income Tax & NI Rates Reference Table 2026
| Tax Band | Taxable Income (2025-26) | Income Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
National Insurance Thresholds 2025-26
| NI Threshold | Annual Amount | Employee Rate |
|---|---|---|
| Primary Threshold | £12,570 | 0% below this |
| Upper Earnings Limit | £50,270 | 8% between thresholds |
| Above Upper Limit | Over £50,270 | 2% |
Source: GOV.UK Income Tax Rates and GOV.UK National Insurance Rates
💡 Important Tips for Car Allowance Decisions
- Calculate net value first: Never compare gross car allowance to company car BIK—always compare after-tax figures. A £7,000 allowance may only give you £4,000 take-home.
- Consider electric vehicles: Company cars with 0g/km CO2 emissions have just 2% BIK rate in 2025-26, making electric company cars exceptionally tax-efficient compared to cash allowances.
- Claim business mileage: If you take a car allowance and use your personal car for business, you can claim 45p/mile (first 10,000 miles) tax-free under AMAP rules—on top of your allowance.
- Pension sacrifice advantage: If you sacrifice car allowance into your pension, you save both Income Tax AND National Insurance, plus get employer NI savings potentially added to your pot.
- Check employer NI costs: Employers pay 13.8% NI on car allowances but only Class 1A NI on company car BIK. Some employers share these savings, making allowances more attractive.
- Review annually: Tax rates, BIK percentages, and your salary all change. What was the best choice last year may not be optimal now—recalculate each April.
🔗 Related Calculators
❓ Frequently Asked Questions
📚 Official UK Government Resources
- GOV.UK – Tax on Company Cars
- HMRC – Expenses and Benefits: Company Cars
- HMRC – Approved Mileage Allowance Payments (AMAP)
- GOV.UK – UK Income Tax Rates
- GOV.UK – National Insurance Rates
Disclaimer: This calculator provides estimates based on 2025-26 HMRC rates. Actual deductions may vary based on individual circumstances. Consult a tax professional for advice specific to your situation. Last updated: January 2026