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