Your complete guide to BIK Tax

  • Parkers explains what benefit-in-kind tax is
  • How does it affect the tax you pay on a company car?
  • Find out which BIK band your car is in

If you’re lucky enough to be offered a company car as part of your remuneration package, you’ll also be unlucky enough to be subject to benefit-in-kind (BIK) tax.

But what is BIK, why do you have to pay it and how is it calculated? Parkers has the answers.

What is BIK?

Benefit-in-kind is a tax levied on employees who receive perks in addition to their salary as part of their remuneration package.

If you have a company car which is made available for private use (i.e you take it home in the evenings and at weekends), the taxman will apply a benefit-in-kind value to the vehicle.

How is BIK calculated?

To work out the BIK value of a company car, you multiply the car’s P11D value (its list price including optional extras, VAT and delivery charges, minus the first year registration fee and annual VED car tax) by the percentage banding the car sits in.

From April 2018 a 4% surcharge applies to diesel cars, though this is waived if they meet new Real Driving Emissions stage 2 (RDE2) targets ahead of schedule. Those cars also move up a band for first year VED

Company car driver BIK tax

You can find your car’s BIK banding here.

As an example, the 2020 Mercedes-Benz GLB 200 d AMG Line has a P11D value of £36,535 and emits 133g/km of CO2, putting it in the 30% BIK band. Therefore, the BIK value is £33,535 x 30% = £10,961

To get the amount your company car will cost you in tax per year, you then multiply the BIK value by your income tax banding.

Therefore, a base rate taxpayer in the GLB will pay £10,961 x 20% = £2,192 per annum. For a 40% taxpayer, the calculation is £10,961 x 40% = £4,384 per annum.

When this car is registered will affect the rate paid after 2020. If registered before 6 April 2020, BIK is fixed at 31% for the next three years. If registered after 6 April 2020. BIK is 29%. rising to 31% over the same period.

Choose an electric car for 2020, and you'll pay no BIK in the first year, and just 2% in the third.

To use the Parkers Company Car Tax Calculator, click here

How does BIK compare with salary sacrifice or cash alternative schemes?

Previously salary sacrifice schemes could be quite beneficial for company car drivers; the cost of the car could be deducted from the salary pre-tax to pay for a vehicle on the scheme, with the employee effectively paying tax only on the BIK charge.

This now applies solely to ultra-low emission vehicles - those rated at 75g/km of CO2 or less - and in other cases, the tax is based on the higher of either the salary sacrifice alternative or the BIK.

So, you will now be taxed on the actual amount of salary sacrificed unless the BIK is higher.

For those offered a cash alternative, the situation is similar - if you receive an additional £6,000 per year in lieu of taking a company car with a BIK of, say, £3,560, you will now be taxed for the full £6,000 - and a corresponding increase in National Insurance, plus a potentially higher tax bracket on that income may apply.

In other words, you're going to be taxed on the benefit you actually receive, be it income or vehicle, but can potentially still save by opting for a vehicle with 75g/km or lower emissions.

Existing salary sacrifice schemes taken before April 2017 will be allowed to continue until 2021.

Company car driver BIK tax

How much should I expect to pay in company car tax?

You can use the Parkers company car tax calculator to quickly work out how much you'll be liable to pay for a given make and model.

The table below outlines the tax payable on company cars over the next three years, arranged by a car's emissions output: Remember that you need to add a further 4% - up to the maximum of 37% - if you’re running a diesel car that does not conform to RDE2 emissions standards (or Euro 6d).

Regardless of emissions standard, the 4% surcharge doesn't apply to diesel plug-in hybrids.

From January 2020 to January 2021, it's possible for cars to get Euro 6d type approval before it's mandatory. All cars sold from January 2021 must comply with RDE2, but for 2020, there will be a mix of diesels on offer with different costs.

To compensate for 'emissions inflation' as a result of WLTP testing, different rates are now applicable for cars registered berfore April 2020, and after April 2020, reflecting the shift in CO2 figures. Cars tested on the older standard retain existing BIK rates until 2022/23.

Emissions Electric Range 2019/20 2020-2023
 
2021/22 2022/23
CO2 (g/km) Miles % of P11D % of P11D   % of P11D    % of P11D
First Registered     Pre-April 6 2020 Post-April 6 2020 Pre
Post
0
16 0 0
1
1
2
1-50
More than 130
16
2
0
2
1
2
1-50 70-129
16
5
3
5
4
5
1-50 40-69 16
8
6
8
7
8
1-50 30-39
16
12
10
12
11
12
1-50 Less than 30
16
14
12 14
13
14
51-54
19
15
13 15
14
15
55-59

19
16 14 16 15
16
60-64
19
17 15 17
16
17
65-69
19
18 16 18 17
18
70-74 (75)

19
19
17
19
18
19
(76) 75-79
22
20 18
20
19
20
80-84
22
21 19
21
20
21
85-89
22
22 20 22
21
22
90-94
22
23 21 23
22
23
95-99
23
24 22 24
23
24
100-104
24
25 23 25
24
25
105-109
25 26 24 26
25
26
110-114
26 27 25 27
26
27
115-119
27 28 26 28
27
28
120-124
28 29 27 29
28
29
125-129
29 30
28 30
29
30
130-134
30
31
29
31
30
31
135-139
31
32 30 32
31
32
140-144
32
33 31 33
32
33
145-149
33 34 32 34
33
34
150-154
34 35 33 35
34
35
154-159
35 36 34 36
35
36
160-164
36 37 35 37
36
37
165-169
37
36   37
 
170 +



37      

 

What about BIK on vans?

If you have personal use of a company van then BIK may be applied at a base rate of £3,430 (or £2,058 for zero emission vans), You are allowed ‘reasonable’ use of a van before you have to pay BIK so you will be able to take it home at night; but if you use a company van as a weekend runabout or to go on holiday, BIK will need to be applied.

To get your van BIK you multiply £3,430 by your income tax banding (either 20% or 40%). If multiple people share the van, divide that £3,430 figure by the number of employees using it first.

This section of BIK is particularly pertinent to double cab pickups such as the Mitsubishi L200 and Nissan Navara, both of which offer four doors, comfortable cabins and seating for five adults. To qualify as a commercial vehicle, it must have a payload of one tonne. Double cab pickups generally have a minimum of 1,045Kg, to allow the fitment of a factory hardtop without reducing the payload below that threshold.

Does BIK apply to free fuel?

Some companies will pay for an employee’s private fuel (i.e commuting and leisure mileage) as well as paying for business miles. If this is the case, benefit-in-kind tax will apply to the fuel perk, too.

The taxman sets a notional figure of £24,100 for the fuel benefit charge multiplier, which is then multiplied by the BIK percentage banding.

Using a Volkswagen Golf 1.6 TDI with 23% BIK as an example, the fuel benefit charge will be calculated as follows: £24,100 x 23% = £5,543. To work out how much tax the fuel benefit will cost, multiply by your income tax banding:

£5,543 x 20% = £1,111 per annum or £92 a month
£5,543 x 40% = £2,222 or £184 a month

Paying this much tax a month for the benefit of ‘free’ fuel means that you need to calculate how much fuel you’re getting from your company for private mileage to be certain whether it’s a worthwhile perk. Van fuel benefit is a fixed £655.

Familiar company car tax terms

  • Benefit-in-kind (BIK) - this is any benefit which employees receive from employment but are not included in a salary. The obvious example in our case is company cars, which are taxed according to the income of the employee.
  • Emissions - the amount of gas the car emits from the exhaust. Measured in terms of CO2 for company car tax purposes.
  • g/km - the level of carbon dioxide emitted by a car is measure in grams per kilometre.
  • P11D - this is the form that each employer must fill in annually and send to the tax office.
  • P11D value - this is the value of your car including RRP, VAT, delivery and any extras (such as metallic paint or satellite navigation). It does not include road tax or first registration fee.
  • Personal tax allowance - this is a sum of money that you're allowed to earn without being taxed upon it - currently £12,500.