Employee Guide To Company Car Tax - Benefit in Kind (BIK) - Select Car Leasing
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What is Benefit in Kind (BIK) Company Car Tax?

This easy-to-read, essential guide to company car tax for employees explains not only what company car tax and benefit in kind (BIK) are, but also how they’re calculated and what employees can do to help minimise the amount payable.

What is a Company Tax/BIK?

‘Company car tax’, ‘benefit in kind’ or BIK are terms used to refer to tax payable by employees who receive personal benefits or perks on top of their salary. If you’re being offered a company car that will be used to any degree for private use, you’ll have to pay BIK tax on it.

NB: The benefits and taxation rules are the same for employees as they are any company director being given a company car or van, therefore where the term ‘employee’ is used, this includes reference to any company director being given a company car/van. 

Taxation and vehicle usage

Company cars are usually given to employees for combined business and private use, however on occasion they can be given for business-use only. The tax implications for employees is very different depending on whether the vehicle is used solely for business purposes or for personal uses as well.

Although a somewhat difficult test to pass, if your employer can demonstrate the vehicle is ‘not available for personal use’, there will be no BIK (company car tax) payable by you. The ‘pass or fail’ test the HMRC applies is whether the vehicle is ‘available for private usage’ (so, the car must not be parked at your home overnight, not be driven between work and home or visa-versa etc.). In addition, it must also be insured for business-only usage. These rules apply also to pool cars (i.e. where more than one employee is using a vehicle). Such strict business-only is very unusual, however.

If you use the company car for a mix of business and private use, the HMRC sees this as a bonus of your employment and you must pay BIK on it. This amount is usually deducted from your monthly salary/wages.

How to calculate employee company car tax/BIK

The BIK payable by employees for a company car with mixed business-private use is determined by:

  • The amount of CO2 the car emits (there are 21 emissions bands, the lower the emissions rating, the lower the charge) and the engine type
  • The car’s P11d value (a combination of the car’s list price plus VAT, delivery charges, plus the cost of any options worth over £100)
  • Your personal tax bracket

The employee BIK rate payable can be calculated by multiplying the figure for the vehicle’s emissions level and engine type, by the vehicle’s P11d value. This figure is then multiplied by your personal tax bracket (e.g. 20%, 40%) to give the amount that will be deducted from your salary or wages each month, e.g.:

30% (our theoretical vehicle’s emissions band and engine type) x P11d value. Then multiply this figure x 20% (our theoretical employee’s tax bracket) to give the amount payable in BIK by you as the employee

Emissions Banding Ratings

If you’re considering leasing from us, the emissions level is clearly shown beside each vehicle on the Select Car Leasing website, or alternatively you can find out your vehicles current HMRC emissions banding rating here:

CO2 emissions Diesel cars (TC49) that meet the RDE2 standard and petrol cars (TC48) All other diesel cars (TC49) Alternative fuel cars (TC59)
0g/km £0 £0 £0
1 to 50g/km £10 £25 £0
51 to 75g/km £25 £115 £15
76 to 90g/km £115 £140 £105
91 to 100g/km £140 £160 £130
101 to 110g/km £160 £180 £150
111 to 130g/km £180 £220 £170
131 to 150g/km £220 £555 £210
151 to 170g/km £555 £895 £545
171 to 190g/km £895 £1,345 £885
191 to 225g/km £1,345 £1,910 £1,335
226 to 255g/km £1,910 £2,245 £1,900
Over 255g/km £2,245 £2,245 £2,235

Minimising Company Car Tax/BIK

If you’ve worked out the amount of BIK you’d need to pay on a company car and now want to know how to reduce it or potentially avoid it all together, then read on:

  • Consider whether you really need the vehicle for private use, if you don’t and are happy to use it solely for business purposes and keep it at your place of work when not being driven, then you won’t need to pay BIK on it
  • If you’d be leasing the company car and you have some say over which vehicle you drive, consider choosing either a smaller engine or an alternative fuel vehicle such as a hybrid or electric as this will reduce the BIK payable by you
  • Instead of a company car, consider taking a car allowance (i.e. additional pay that you receive as part of your salary and simply pay PAYE on) and use it to lease a vehicle in your personal name. This will allow you to avoid accruing BIK, and you can still reclaim business fuel expenses. To find out more, read our employee guide to car allowances and our comparison of company cars vs. car allowance for employees

If you'd like to speak with our friendly team about business vehicle leasing, simply call 0118 920 5130 or email us at: enquiries@selectcarleasing.co.uk

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