What is Benefit in Kind car tax?

What is Benefit in Kind car tax?

All you need to know about Benefit in Kind tax

A lot of employers offer a range of different perks to entice their employees.

But they’re not always entirely free.

If you have a company vehicle that you also use privately or lease an electric car through a salary sacrifice scheme, you’ve probably heard a lot about Benefit in Kind (BiK).

Here’s a little guide about Benefit in Kind tax, what it means and how to calculate it.

What does Benefit in Kind mean?

Benefits in Kind are any perks that you get from your employer on top of your salary.

Anything that you’ve received from your employer that has benefitted you personally and isn’t a necessity is most likely a benefit in kind.

So if you have a company car that you use for personal journeys too, including commuting from home to the office, you’ll have to pay BiK tax.

What is Benefit in Kind based on?

How much Benefit in Kind tax you need to pay depends on the vehicle’s P11D value, its CO2 emissions (BiK rate) and the tax bracket your income comes under.

The P11D value is the list price of a vehicle plus delivery charges. This figure excludes any discounts and does not consider first registration fees or annual road tax. Your income tax band will typically be 20%, 40% or 45%.

What are the BiK tax rates?

There’s no benefit to choosing a diesel or petrol car for your company car as the BiK tax rates are far too high.

If you’re looking to make savings on BiK, then you’ll need to choose an ultra-low or zero-emission vehicle as they’ll certainly lower your monthly tax bill.

They’re not exempt, but BiK for electric vehicles is currently fixed at 2% until April 2025 and will increase by 1% every year until 2028. So the rate for the 2027/2028 tax year will be 5%.

Ultra-low-emission vehicles such as plug-in hybrids have a rate of between 8-12%, while up to 25% can be taxed on pure hybrids.

Either way, EV company car drivers will pay a lot less company car tax compared to others.

How to calculate BiK tax yourself

No one wants to pay any more tax than they have to, so here’s how to calculate BiK yourself.

First, you’d need to find a percentage of the car’s P11D value by its BiK rate and then by your income tax band.

E.g., If your income came under the 20% bracket and your electric car had a P11D value of £30,000, you’d find 2% (BiK rate) of 30,000 and then find 20% of that figure to get your annual BiK, which would be £120.

Don’t panic if that still didn’t make sense to you or if it sounds complicated.

To make things even quicker and simpler, you can use Corparison’s company car tax calculator to work out the amount of BiK you’ll need to pay. All you need to do is insert the make, model, fuel type and tax year and our calculator will do all the work for you.

Other examples of taxable benefits in kind

• Fuel: If your employer pays for fuel for your company car but you use it privately too, that includes commuting, you’ll have to pay tax on the fuel that was used for any personal journeys.
• Health care: Providing health insurance for employees is a taxable benefit.
• Accommodation: If expenses for an employee’s accommodation is taken care of by an employer, this will be taxable too.