How Benefit-in-Kind for Company Cars Works

How BIK for Company Cars Works:

Taxable Benefit Calculation:

• • The taxable value of the company car is determined by its list price (the price of the car when new) and its CO2 emissions. The higher the emissions, the higher the BIK rate.
  • Electric and low-emission vehicles benefit from lower BIK rates, making them more tax-efficient options.

BIK Rates:

• • BIK rates are expressed as a percentage of the car’s list price. This percentage is applied to the list price to calculate the taxable benefit.
  • The percentage varies based on the car’s CO2 emissions and fuel type. For example, electric cars have a lower BIK rate compared to petrol or diesel cars.

Employee Tax Liability:

• • The calculated taxable benefit is added to the employee’s income, and they pay income tax on this amount at their marginal tax rate.
  • For instance, if an employee is in the 20% tax bracket and the taxable benefit of the car is £5,000, they would pay £1,000 in BIK tax annually.

Employer’s Role:

• • Employers must report the BIK value to HM Revenue and Customs (HMRC) and include it in the employee’s PAYE (Pay As You Earn) tax code.
  • Employers also pay Class 1A National Insurance contributions on the value of the BIK.

Fuel Benefit:

• • If the employer also provides fuel for private use, this is considered an additional taxable benefit. The value is calculated separately and added to the employee’s taxable income.

Overall, BIK for company cars is a way to tax the personal use of a company-provided vehicle. By choosing low-emission or electric vehicles, employees can reduce their BIK tax liability and enjoy more tax-efficient benefits.

How to Calculate Benefit-in-Kind

1. Determine the Car’s List Price:

   • Include VAT and any optional extras.
   • Example: £30,000

2. Find the Car’s CO2 Emissions:

   • Check the car’s CO2 emissions (g/km).
   • Example: 100 g/km

3. Identify the BIK Rate:

   • Use the government BIK rate table based on CO2 emissions.
   • Example: 20%

4. Calculate the Taxable Benefit:

   • Multiply the car’s list price by the BIK rate.
   • Formula: List Price × BIK Rate
   • Example: £30,000 × 20% = £6,000

5. Determine the Employee’s Tax Liability:

   • Add the taxable benefit to the employee’s taxable income.
   • Calculate the income tax based on the employee’s tax bracket.
   • Example: If the employee is in the 20% tax bracket:
     • Tax Liability: £6,000 × 20% = £1,200

6. Employer’s Responsibility:

   • Report the BIK value to HMRC.
   • Pay Class 1A National Insurance on the BIK value.

Example Calculation

• List Price: £30,000
• CO2 Emissions: 100 g/km
• BIK Rate: 20%
• Taxable Benefit: £30,000 × 20% = £6,000
• Employee’s Tax Liability: £6,000 × 20% = £1,200

Current Benefit in Kind Rates: