Understanding Benefit-in-Kind (BIK) for Company Cars
Everything you need to know about BIK so you can lease the right vehicle.
Understanding Benefit-in-Kind (BIK) for Company Cars
Benefit-in-Kind (BIK) refers to any non-cash benefit provided by an employer to an employee that is subject to tax. When it comes to company cars, BIK is a tax paid by employees for the personal use of a vehicle provided by their employer. Understanding BIK is crucial for both employees and employers to manage tax liabilities and take advantage of potential savings.
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How BIK Applies to Company Cars
Using a company car for personal use incurs BIK tax because it is considered a perk or benefit of the job. Personal use includes any private travel, such as commuting to and from work. The BIK tax is calculated based on the value of this benefit, which varies depending on the car’s CO2 and P11d, and the employee’s tax bracket.
Calculating BIK for Company Cars
Factors Influencing BIK Calculation
Several factors influence the calculation of BIK for company cars:
Car's list price (P11D value): This is the car's official price, including VAT and any optional extras.
CO2 emissions: Lower-emission cars attract lower BIK rates, promoting environmentally friendly choices.
Employee’s income tax bracket: The rate of income tax (20%, 40%, or 45%) that the employee pays will affect the total BIK payable.
Step-by-Step Guide to BIK Calculation
Determine the car’s P11D value: This is the list price of the car, including VAT and any additional options.
Find the CO2 emission bracket: Check the car’s CO2 emissions to find the appropriate percentage rate from the BIK rate table (found here).
Calculate the BIK value: Multiply the P11D value by the BIK percentage rate.
Apply the employee’s tax rate: Multiply the BIK value by the employee’s income tax rate to find the annual tax payable.
Example:
Car’s P11D value: £30,000
CO2 emissions: 58g/km (16% BIK rate)
Employee’s tax rate: 20%
BIK value: £30,000 x 16% = £4,800 Annual tax payable: £4,800 x 20% = £960 for the year
Benefits of Low-Emission and Electric Vehicles
Tax Incentives for Low-Emission Cars
Choosing low-emission or electric vehicles can significantly reduce your BIK tax. These vehicles often fall into the lower BIK rate brackets, resulting in substantial tax savings. For instance, electric vehicles with zero emissions currently attract a 2% BIK rate, making them an attractive option for both employees and employers.
Government Initiatives and Support
The government supports the adoption of low-emission and electric vehicles through various initiatives and grants. These incentives can help offset the higher initial cost of these vehicles, making them more affordable and appealing for businesses and employees.
BIK Rates and Thresholds
Current BIK Rates and Thresholds
BIK rates and thresholds are set by the government and can change annually. The rates are based on CO2 emissions, with lower emissions attracting lower rates. Here are the current BIK rates:
0-50g/km: 2%-14% (depending on electric range)
51-74g/km: 15%-19%
75-94g/km: 20%-23%
95g/km and above: Rates increase incrementally up to 37%
Future Changes and Trends
It’s important to stay informed about upcoming changes to BIK rates. The government regularly updates these rates to encourage the use of environmentally friendly vehicles. Keep an eye on official announcements to plan your company car strategy accordingly.
BIK for Employers
Employer Responsibilities and Compliance
Employers are responsible for reporting BIK to HMRC and ensuring compliance with tax regulations. This involves calculating the BIK value for each employee with a company car and including it on their P11D form. Employers must also consider the impact of BIK on their payroll and ensure accurate reporting.
Offering Company Cars as an Employee Benefit
Providing company cars can be a valuable employee benefit, enhancing job satisfaction and retention. Employers should consider the total cost of providing this benefit, including BIK implications, and choose vehicles that offer a balance between attractiveness to employees and cost-effectiveness.
BIK for Employees
Understanding Your BIK Liability
Employees using a company car for personal use should understand their BIK liability to manage their finances effectively. It’s essential to know how to calculate your BIK tax and what factors affect it, such as the car’s CO2 emissions and your income tax bracket.
Minimising Your BIK Liability
To minimise BIK liability, consider choosing a low-emission or electric vehicle. These cars fall into lower BIK rate brackets, reducing the overall tax payable. Additionally, staying informed about changes in BIK rates and thresholds can help you make better vehicle choices.
Can we help with a BIK query?
If you have any questions or need personalised advice on BIK and company car leasing, feel free to contact our leasing experts. We’re here to help you make the best decisions for your business and employees.
Frequently Asked Questions about BIK (FAQs)
How do I calculate BIK for my company car?
Use the P11D value and CO2 emissions of the car to find the BIK rate, then multiply by your income tax rate.
What cars have the lowest BIK rates?
Electric and low-emission vehicles typically have the lowest BIK rates.
How does BIK affect my payroll?
BIK is added to your taxable income, affecting the amount of tax deducted from your salary.
How does BIK affect self-employed individuals?
Self-employed individuals typically do not pay BIK tax, as BIK is a tax on employee benefits. However, self-employed individuals can claim car expenses through their business, which can offer tax advantages. It’s best to consult with an accountant to understand the most tax-efficient way to manage vehicle expenses if you’re self-employed.
What happens if I change my company car during the tax year?
If you change your company car during the tax year, your BIK liability will be prorated based on the time you use each car. The P11D value and CO2 emissions of the new car will determine the BIK rate for the remainder of the year. Your employer will update HMRC with the details, and your tax calculations will be adjusted accordingly.
Can I reduce my BIK tax by choosing a car with lower emissions?
Yes, choosing a car with lower CO2 emissions can significantly reduce your BIK tax. Cars with lower emissions fall into lower BIK rate brackets, resulting in lower taxable benefits. Electric and hybrid vehicles often have the lowest BIK rates, making them an attractive option for reducing your tax liability.
What is a P11D form, and why is it important?
A P11D form is used by employers to report the value of any benefits and expenses provided to employees, including company cars. It’s important because it details the BIK value that will be taxed. Employers must submit P11D forms to HMRC annually, and employees use the information to ensure their tax returns are accurate.
Are there any exceptions to paying BIK on company cars?
There are limited exceptions, but the more common exception is if the car is only used for business purposes and is not available for personal use or if the vehicle is classed as a commercial vehicle.
How does salary sacrifice impact BIK for company cars?
A salary sacrifice arrangement allows employees to give up a portion of their salary in exchange for a non-cash benefit, such as a company car. While this can reduce the employee’s taxable income, the BIK tax on the company car still applies. However, the overall tax savings from the salary sacrifice can make this an attractive option.
How do I report errors in my BIK calculation?
If you notice an error in your BIK calculation, you should notify your employer immediately. They can correct the information and submit an amended P11D form to HMRC. It’s important to address errors promptly to ensure you’re not overpaying or underpaying your tax liability.
Can BIK rates change during my lease term?
BIK rates are set annually by the government and can change from one tax year to the next. If BIK rates increase, your tax liability may also increase during your lease term. It’s important to stay informed about any changes to BIK rates and plan accordingly.
How can businesses manage BIK for a large fleet of vehicles?
Managing BIK for a large fleet requires careful planning and record-keeping. We can provide businesses with the use of fleet management software to track vehicle details, CO2 emissions, and employee usage. Regular reviews and updates ensure compliance with BIK regulations and help optimise the fleet for tax efficiency.
What support does HMRC offer for understanding BIK?
HMRC provides various resources to help employers and employees understand BIK, including online calculators, guides, and helplines. Visiting the HMRC website or contacting their support services can provide additional information and clarification on BIK-related queries.
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