02/09/2019
- Navigating the World of Company Car Benefit-in-Kind Tax
- What Exactly is Benefit-in-Kind (BIK) Tax?
- How Do I Calculate My BIK Company Car Tax?
- Understanding BIK Company Car Tax Bands
- Calculating Your Personal BIK Tax Liability
- Diesel Surcharge
- BIK Tax on Company Vans
- Responsibilities for Employers and Employees
- Frequently Asked Questions (FAQs)
- Conclusion
In the UK job market, employers often use a variety of attractive perks to entice potential employees, with a company car being a popular and significant benefit. While the allure of a company car is undeniable, it's crucial to understand that this perk isn't entirely free. Depending on the car's specifications and how you utilise it, you will likely be liable to pay a 'Benefit-in-Kind' (BIK) tax. This guide aims to demystify how BIK tax works for company cars and provide insights into the potential costs involved.
What Exactly is Benefit-in-Kind (BIK) Tax?
Benefit-in-Kind, often abbreviated to BIK, refers to any perks or bonuses provided to an employee that fall outside their regular salary package. Many of these benefits are tax-free as they are directly linked to your work environment. Examples include cycle-to-work schemes, subsidised or free meals provided on-site, and access to an in-house gym or sports facilities. However, benefits that extend beyond the workplace and offer personal advantage to the employee, such as the use of a company car, are classified as taxable benefits and are subject to BIK tax.
The rate of BIK tax, also known as the BIK rate, is not a one-size-fits-all figure. It is determined by a confluence of factors, including your personal income tax bracket, the car's carbon dioxide (CO2) emissions, its fuel efficiency, and its P11D value. The P11d value is a valuation of the car that encompasses VAT and delivery charges but excludes the initial registration fee and road tax. This value is fundamental in calculating the taxable benefit.
How Do I Calculate My BIK Company Car Tax?
Calculating your specific BIK company car tax can seem daunting, but thankfully, there are resources to assist you. The most accurate and up-to-date source for this information is the government's official company car tax calculator. It is vital to use this resource because the BIK value, and consequently the tax rate, can change annually with each new tax year. Relying on outdated online sources could lead to inaccurate calculations.
The government calculator takes into account a car's CO2 emissions, which are measured using one of two testing procedures: the older NEDC (New European Driving Cycle) test for cars registered before 6 April 2020, and the newer, more rigorous WLTP (Worldwide Harmonised Light Vehicles Test Procedure) for cars registered on or after 6 April 2020. While the WLTP test is generally more stringent, leading to potentially higher reported emissions figures, the BIK tax rate for most car models has been adjusted to reflect this. In practice, this means that although the BIK tax rate percentage might appear similar or even lower for some vehicles under WLTP, the actual cash equivalent payments could remain the same or even increase due to the more realistic, albeit harsher, testing conditions.
Understanding BIK Company Car Tax Bands
The BIK tax bands are tiered based on a vehicle's CO2 emissions and, for electric vehicles, their electric range. These bands determine the percentage of the car's P11D value that will be subject to your personal income tax rate. It's important to note that these bands are updated annually. Below are the typical BIK tax bands for recent financial years:
Cars Registered After 6 April 2020 (WLTP Test)
The following table outlines the BIK tax percentage rates based on CO2 emissions and electric range:
| CO2 Emissions (g/km) | Electric Range | 2020-21 (% rate) | 2021-22 (% rate) | 2022-23 (% rate) |
|---|---|---|---|---|
| 0 | n/a | 0% | 1% | 2% |
| 1-50 | >130 miles | 0% | 1% | 2% |
| 1-50 | 70-129 miles | 3% | 4% | 5% |
| 1-50 | 40-69 miles | 6% | 7% | 8% |
| 1-50 | 30-39 miles | 10% | 11% | 12% |
| 1-50 | <30 miles | 12% | 13% | 14% |
| 51-54 | 13% | 14% | 15% | |
| 55-59 | 14% | 15% | 16% | |
| 60-64 | 15% | 16% | 17% | |
| 65-69 | 16% | 17% | 18% | |
| 70-74 | 17% | 18% | 19% | |
| 75-79 | 18% | 18% | 20% | |
| 80-84 | 19% | 20% | 21% | |
| 85-89 | 20% | 21% | 22% | |
| 90-94 | 21% | 22% | 23% | |
| 95-99 | 22% | 23% | 24% | |
| 100-104 | 23% | 24% | 25% | |
| 105-109 | 24% | 25% | 26% | |
| 110-114 | 25% | 26% | 27% | |
| 115-119 | 26% | 27% | 28% | |
| 120-124 | 27% | 28% | 29% | |
| 125-129 | 28% | 29% | 30% | |
| 130-134 | 29% | 30% | 31% | |
| 135-139 | 30% | 31% | 32% | |
| 140-144 | 31% | 32% | 33% | |
| 145-149 | 32% | 33% | 34% | |
| 150-154 | 33% | 34% | 35% | |
| 155-159 | 34% | 35% | 36% | |
| 160-164 | 35% | 36% | 37% | |
| 165-169 | 36% | 37% | 37% | |
| 170 or more | 37% | 37% | 37% |
Cars Registered Before 6 April 2020 (NEDC Test)
For vehicles registered prior to this date, the BIK tax bands were as follows:
| CO2 Emissions (g/km) | Electric Range | 2020-21 (% rate) | 2021-22 (% rate) | 2022-23 (% rate) |
|---|---|---|---|---|
| 0 | n/a | 0% | 1% | 2% |
| 1-50 | >130 miles | 2% | 2% | 2% |
| 1-50 | 70-129 miles | 5% | 5% | 5% |
| 1-50 | 40-69 miles | 8% | 8% | 8% |
| 1-50 | 30-39 miles | 12% | 12% | 12% |
| 1-50 | <30 miles | 14% | 14% | 14% |
| 51-54 | 15% | 15% | 15% | |
| 55-59 | 16% | 16% | 16% | |
| 60-64 | 17% | 17% | 17% | |
| 65-69 | 18% | 18% | 18% | |
| 70-74 | 19% | 19% | 19% | |
| 75-79 | 20% | 20% | 20% | |
| 80-84 | 21% | 21% | 21% | |
| 85-89 | 22% | 22% | 22% | |
| 90-94 | 23% | 23% | 23% | |
| 95-99 | 24% | 24% | 24% | |
| 100-104 | 25% | 25% | 25% | |
| 105-109 | 26% | 26% | 26% | |
| 110-114 | 27% | 27% | 27% | |
| 115-119 | 28% | 28% | 28% | |
| 120-124 | 29% | 29% | 29% | |
| 125-129 | 30% | 30% | 30% | |
| 130-134 | 31% | 31% | 31% | |
| 135-139 | 32% | 32% | 32% | |
| 140-144 | 33% | 33% | 33% | |
| 145-149 | 34% | 34% | 34% | |
| 150-154 | 35% | 35% | 35% | |
| 155-159 | 36% | 36% | 36% | |
| 160 or more | 37% | 37% | 37% | |
| 165-169 | 36% | 37% | 37% | |
| 170 or more | 37% | 37% | 37% |
Calculating Your Personal BIK Tax Liability
To determine your actual tax payable, you need to combine the car's BIK tax band percentage with your personal income tax bracket. For instance, if your company car has a P11D value of £20,000, falls into a BIK tax band of 20%, and you are in the 25% personal tax bracket, the calculation would be as follows:
Step 1: Calculate the taxable benefit amount.
Car's P11D Value × Car's BIK Tax Band Percentage = Taxable Benefit
£20,000 × 20% = £4,000
Step 2: Calculate the tax payable on the benefit.
Taxable Benefit × Your Personal Tax Rate = Annual BIK Tax Payable
£4,000 × 25% = £1,000
Therefore, the annual BIK tax payable on this company car would be £1,000. It's important to remember that this is the tax on the benefit itself, which is added to your overall income tax liability.
Diesel Surcharge
An important consideration for diesel car owners is the additional surcharge. If your company car is a diesel vehicle, you will typically incur a 4% additional surcharge on top of the calculated BIK tax. This is a deliberate measure by the government to discourage the use of diesel vehicles due to environmental concerns regarding particulate emissions. In the example above, the surcharge would increase the annual tax payable to £1,040 (£1,000 + 4% of £1,000).
BIK Tax on Company Vans
The BIK tax rules also extend to company vans, though with some distinctions. If you use a company van exclusively for business purposes, you are generally exempt from paying BIK tax. This exemption also applies if you are self-employed or a sole trader using the van for your business. However, if personal use of the company van is permitted, you will be liable to pay BIK tax at the same rate as for company cars, calculated on the van's taxable benefit.
Responsibilities for Employers and Employees
For Employees:
Her Majesty's Revenue and Customs (HMRC) requires employees to pay BIK tax on any benefits they have access to for personal use, in addition to business use. For a company car, the amount of tax payable is contingent upon the specific car provided and the employee's individual income tax rate. HMRC sets out specific rules for calculating BIK tax on company cars.
For Employers:
As an employer, you bear the responsibility of informing HMRC about any benefits provided to your employees that are in addition to their salary. Each year, before the deadline of 6th July, you must complete a P11D form for every employee who receives a company car benefit. This form details all taxable benefits provided. Alternatively, employers can opt to report taxable benefits through the Pay As You Earn (PAYE) scheme. It's worth noting that reporting benefits via PAYE is set to become the mandatory method from 6th April 2026.
Frequently Asked Questions (FAQs)
Q1: What is the P11D value?
A1: The P11D value is the market value of a car when it is new, including VAT and delivery charges, but excluding the first registration fee and road tax. This value is crucial for calculating the taxable benefit.
Q2: Does the WLTP test affect my BIK tax?
A2: Yes, the WLTP test is a more stringent testing procedure. While BIK rates are adjusted, the more realistic emissions figures can sometimes lead to a higher taxable benefit amount, even if the percentage rate seems lower. Always check the latest government guidance.
Q3: Can I avoid paying BIK tax on a company car?
A3: BIK tax is generally payable on any company car that is available for your private use. If the car is used strictly for business purposes and there is no access for private use, you may be exempt. However, HMRC interprets 'available for private use' broadly.
Q4: What if I don't use the company car much?
A4: The amount of BIK tax you pay is not dependent on how much you use the car, but rather on its value, emissions, and your personal tax rate. If the car is available for your private use, you will be taxed on that availability.
Q5: Is there a BIK tax for electric company cars?
A5: Yes, electric company cars are subject to BIK tax, but they currently benefit from significantly lower tax rates compared to petrol or diesel vehicles. The BIK tax bands for electric vehicles with zero CO2 emissions are very low, making them an attractive option for company car users from a tax perspective.
Conclusion
Understanding Benefit-in-Kind tax on company cars is essential for both employees and employers. By familiarising yourself with the BIK rates, the factors that influence them, and the reporting requirements, you can accurately estimate your tax liability and make informed decisions. Always refer to the latest official government guidance and calculators for the most up-to-date information, as tax regulations can change.
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