Benefit in Kind (BIK) Car Tax Guide

Current Benefit in Kind Rates:

Understanding the Basics

BIK refers to non-cash benefits or perks that employees receive from their employers, on top of their regular salary or wages. These benefits are subject to taxation, and the tax payable is based on the cash equivalent value of the benefit provided.

Step 1: Identify the Benefit

The first step in calculating BIK is to identify the benefit or perks provided by the employer to the employee. Common examples include company cars, private medical insurance, accommodation, interest-free loans, and various other amenities.

Step 2: Determine the Cash Equivalent Value

Once the benefit is identified, the next step is to determine its cash equivalent value. This value represents the amount that HM Revenue and Customs (HMRC) deems as taxable income for the employee.

The cash equivalent value is calculated based on specific rules and guidelines provided by HMRC for each type of benefit. For example:

Types of Benefits

Company Cars: The cash equivalent value of a company car is determined based on factors such as the car's list price, CO2 emissions, and fuel type. HMRC provides tables and calculators to assist in this calculation. This is also applicable with leased cars and any vehicles on a salary sacrifice scheme.

Private Medical Insurance: The cash equivalent value of private medical insurance is typically the cost incurred by the employer in providing the insurance coverage for the employee.

Accommodation: For accommodation provided by the employer, the cash equivalent value is generally the rental value of the property, less any rent paid by the employee.

Calculating BIK for Car Leasing

The calculation of BIK for leased cars follows a specific formula outlined by HM Revenue and Customs (HMRC). The key factors considered in the calculation include:

P11D Value: This represents the car's list price, including VAT, delivery charges, and any optional extras, but excluding the first year's vehicle excise duty and registration fee.

CO2 emissions: The car's CO2 emissions determine its appropriate BIK tax band. Generally, cars with lower CO2 emissions incur lower tax liabilities.

Fuel Type: Whether the car is petrol, diesel, electric, or hybrid affects the BIK tax rate. Electric and low-emission vehicles typically qualify for reduced tax rates.

Personal Contribution: In some cases, employees may make contributions towards the cost of the benefit they receive. These contributions are deducted from the cash equivalent value before calculating the taxable income.

Step 5: Reporting and Compliance

Employers are responsible for reporting BIK to HMRC and deducting the appropriate amount of tax through the Pay As You Earn (PAYE) system. This typically involves completing annual forms such as P11D and P11D(b) and ensuring that the correct amount of tax is withheld from employees' payslips.

Employees also have a responsibility to report any BIK they receive on their annual tax return, ensuring that their tax liabilities are accurately calculated and paid.

Seeking Professional Assistance

Given the complexity of BIK taxation, both employers and employees may benefit from seeking professional advice from accountants or tax advisors. These experts can provide guidance on the calculation of BIK, compliance with HMRC regulations, and strategies for minimising tax liabilities.

Speaking to an accountant or relevant person in your company will be your best bet when calculating Benefit in Kind. There is also a wide range of information available on the Government website on how to calculate tax on employees’ company cars.