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Benefit In Kind

BIK - A guide to company car tax

All you need to know about “benefit in kind”; including how it is calculated and what it means for you as a company car driver.

When a company vehicle and company fuel is made available to an employee or director for private as well as, although not necessarily, business usage it is classed as an employment benefit and is therefore liable to income tax. The amount of income tax that the employee or director pays on the vehicle and fuel is based on a calculated figure known as the “benefit in kind” value. Simply the employer, or the company you work for has provided you with something which offers financial benefit, therefore it has a taxable value.

Benefit in kind is calculated using the vehicles P11D and C02 output. The P11D is the cost of the vehicle including all the manufacture options and any other extras so, as the vehicle cost increases so does the tax liability. The C02 output of a vehicle is also a deciding factor in the eventual benefit in kind as the C02 increases so does the benefit in kind payable, so in short the more expensive and the more C02 output the more it will cost on payable tax. If you want to calculate your benefit in kind, click here to find the car you want, and see its current C02 output. There are tax liability illustrations attached to all the vehicles offered however, the chart for making these calculations is shown below.

UK Carline has many industry associates helping us to keep our services up to date. One of these associates is Network Vehicles a subsidiary of Lease plan, the world’s largest leasing company. There is a link below this paragraph which will take you to a benefit in kind calculator which is provided by Leaseplan. If you require any further information please do not hesitate to contact one of our account managers who will help with any specific benefit in kind enquiries.

Commonly asked questions and answers

Q: What is company car tax?

A: A tax which is payable on a certain percentage of the total P11d value of your car. The percentage paid is based on the emissions of the car. People earning £42,385 per year or less will have to pay 20% of this amount in tax, and people earning over that amount will have to pay 40%. If you’re lucky enough to earn over £150,000 each year you'll have to pay 50%. This is normally deducted each month from your salary.

The P11D value of your car is used to calculate the amount of company car tax you pay.

P11D is actually the name of a form filed by employers and sent to the tax office with which their Pay As You Earn scheme is registered.

The P11D value of your car comprises the list price, including VAT, plus any delivery charges, but does not include the car’s first registration fee or its annual road tax.

Some manufacturers' pricing does not contain a specific delivery charge, but it won't make a difference to your tax bill compared with equivalent models from other brands because they would be benchmarked at the on-the-road price.

For example, car A is priced at £15,480 on the road. It is made up of £14,655 list price (basic price plus VAT), £645 delivery fees, £125 annual Vehicle Excise Duty and £55 first registration fee.

Its P11D value would be £15,300 - list price plus delivery fees, but without road tax and first registration fee.

Meanwhile, car B is also priced at £15,480 on the road. Its manufacturer does not list a separate delivery charge, but the list price is stated as £15,275. It is subject to VED at £150 a year, and a first registration fee of £55. Therefore the P11D value is £15,275.

Choosing factory-fit options in your company car will have a direct impact on its P11D value, with the full value of the option contributing to the total.

To calculate annual company car tax the P11D value is multiplied by the percentage rate of income tax you pay (20 per cent or 40 per cent) and by the benefit-in-kind tax band dictated by the car's carbon dioxide emissions.

Q: Are there any dispensations for low-emissions cars that aren't 100% electric?

A: A 5% BIK band is now in place for cars that emit below 50g/km CO2.

Q: Is there a maximum price cap on the amount taxable on a company car?

A: No, although the highest BIK % is 37% of the list price.

Q: Why are diesels so popular?

A: The simple answer is they produce less CO2, so the tax bill should be smaller.

However, they are usually significantly more expensive to buy than an equivalent petrol version, so you have to make sure the higher P11D price doesn't outweigh any advantage from a lower tax band.

You also need to do your homework on fuel costs, because diesel costs more at the pumps than petrol and you need to meet the predicted fuel economy figures from the manufacturer to gain a real benefit.

Q: Will electric cars be exempt from company car tax?

A: No, they fall into the sub 50g CO2 bracket.

Q: What about hybrid cars? Where do they come into it?

A: Hybrid cars currently conform to the same tax rules as petrol cars. This means they sit in lower bands, so you'll pay less tax for owning them.

Q: What about the rules for vans?

A: Light commercial vehicles, including double-cab pick-up trucks with payloads in excess of 1000kg, are classed as a benefit in kind if they are also provided for private use.

Unlike cars, tax on use of commercial vehicles provided by an employer is levied at a flat rate.

Currently this is £3,150 if the van is less than four years old at the end of the tax year. Therefore a basic rate taxpayer would owe the treasury £630 a year, while a higher rate taxpayer would have an annual bill of £1260.

Q: So how much should I expect to pay in company car tax?

A:  Click here to go to our benefit in kind Calculator.

The table below outlines the tax payable on company cars over the next few years, arranged with by a car's emissions output:

% of P11D

2012/13

2013/14

2014/15

2015/16

2016/17

Price

CO2 (g/km)

CO2 (g/km)

CO2 (g/km)

CO2 (g/km)

CO2 (g/km)

 

 

 

 

 

 

0

0

0

0

N/A

N/A

5

1-75

1-75

1-75

N/A

N/A

10

76-99

76-94

N/A

N/A

N/A

11

100-104

95-99

76-94

N/A

N/A

12

105-109

100-104

95-99

N/A

N/A

13

110-114

105-109

100-104

0-94

N/A

14

115-119

110-114

105-109

95-99

N/A

15

120-124

115-119

110-114

100-104

0-94

16

125-129

120-124

115-119

105-109

95-99

17

130-134

125-129

120-124

110-114

100-104

18

135-139

130-134

125-129

115-119

105-109

19

140-144

135-139

130-134

120-124

110-114

20

145-149

140-144

135-139

125-129

115-119

21

150-154

145-149

140-144

130-134

120-124

22

155-159

150-154

145-149

135-139

125-129

23

160-164

155-159

150-154

140-144

130-134

24

165-169

160-164

155-159

145-149

135-139

25

170-174

165-169

160-164

150-154

140-144

26

175-179

170-174

165-169

155-159

145-149

27

180-184

175-179

170-174

160-164

150-154

28

185-189

180-184

175-179

165-169

155-159

29

190-194

185-189

180-184

170-174

160-164

30

195-199

190-194

185-189

175-179

165-169

31

200-204

195-199

190-194

180-184

170-174

32

205-209

200-204

195-199

185-189

175-179

33

210-214

205-209

200-204

190-194

180-184

34

215-219

210-214

205-209

195-199

185-189

35

220+

215+

210+

200-204

190-194

36

N/A

N/A

N/A

205-209

195-199

37

N/A

N/A

N/A

210+

200+

  • Up to the end of tax year 2014/15 add 3% for diesel cars up to a maximum of 35%
  • For tax year 2015/16 add 3% for diesel cars up to a maximum of 37%
  • In 2016/17 petrol and diesel cars are treated equally for company car tax purposes.

Familiar company car tax terms

Additional rate - this is a tax rate for people earning over £150,000 each year, and is payable at 50%.

Basic rate - for 2011/2012 employees earning under £35,000 a year, a lower rate of tax is payable. With regards to company car tax, they are eligible for a 20% tax rate.

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.

Higher rate - for 2011/2012 an employee earning between £35,001 and £150,000, a higher rate of tax is payable. With regards to company car tax, this means paying 40% tax.

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. For 2011/2012 this amount was £7,475.

Recommended retail price (RRP) - this is the amount the car manufacturer thinks its car is worth. It's likely that some RRPs will be very different from the actual price the customer pays for the car thanks to heavy discounting, so be aware that you may end up paying far higher tax on your car than you thought.

Vehicle Excise Duty (VED) - this is payable on all cars, and is based on the CO2 output of the car in question

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