What is BIK Tax and How Does It Affect Company Car Leasing?
Benefit-in-Kind (BIK) tax is a tax on perks or benefits provided by an employer, including company cars. When you lease a company car, it is considered a benefit, and therefore, subject to BIK tax. The amount of BIK tax you pay is influenced by the car’s CO2 emissions, the P11D value (which includes the car’s list price and any additional features), and your personal income tax bracket. Understanding BIK tax is essential when leasing a company car, as it can impact your overall tax liability. Choosing a lower-emission vehicle can help reduce the amount of BIK tax you owe, making it a critical consideration in your decision-making process.
How Can I Minimise My BIK Tax Liability with Flexed?
If you’re looking to minimize your BIK tax liability while leasing a company car, Flexed can help. One effective strategy is to choose a vehicle with low CO2 emissions, such as a hybrid or electric car, which generally attract lower BIK tax rates. By opting for a fuel-efficient vehicle, you not only contribute to environmental sustainability but also benefit from potential tax savings. Flexed offers a wide range of low-emission vehicles, making it easier for you to find a company car that suits your needs and reduces your BIK tax burden.
To calculate your BIK tax, you will need to multiply your vehicle’s BiK band percentage by its P11d value. These tax rates are based upon how much carbon dioxide (CO2) your car emits per gram every kilometre (g/KM) and are therefore different for each vehicle.
BiK tax rate x P11d value = BiK Value
The final BiK tax is then adjusted to suit your annual salary, but only slightly. To do this, multiply your figure by your tax rate at 20, 40 or 45%.
BiK Value x Tax Banding = BiK Tax
(BiK) Benefit in Kind rates for cars registered before and after April 2020
Using new NEDC figures, the table below outlines the BiK rates for cars registered before and after April 2020
Vehicle CO2 emissions | BiK rate(Electric, Petrol, RDE2 Diesel) | ||||||
| CO2 (g/km) | Electric range (miles) | FY 2021-22 | FY 2022-23 | FY 2023-24 | |||
| Petrol, Electric, RDE2 Diesel | Non- RDE2 Diesel | Petrol, Electric, RDE2 Diesel | Non- RDE2 Diesel | Petrol, Electric, RDE2 Diesel | Non- RDE2 Diesel | ||
| 0 | 1 | 2 | 2 | ||||
| 1-50 | 130+ | 1 | 2 | 2 | |||
| 1-50 | 70-129 | 4 | 5 | 5 | |||
| 1-50 | 40-69 | 7 | 8 | 8 | |||
| 1-50 | 30-39 | 11 | 12 | 12 | |||
| 1-50 | <30 | 13 | 14 | 14 | |||
| 51-54 | 14 | 15 | 15 | ||||
| 55-59 | 15 | 16 | 16 | ||||
| 60-64 | 16 | 17 | 17 | ||||
| 65-69 | 17 | 18 | 18 | ||||
| 70-74 | 18 | 19 | 19 | ||||
| 75-79 | 19 | 23 | 20 | 24 | 20 | 24 | |
| 80-84 | 20 | 24 | 21 | 25 | 21 | 25 | |
| 85-89 | 21 | 25 | 22 | 26 | 22 | 26 | |
| 90-94 | 22 | 26 | 23 | 27 | 23 | 27 | |
| 95-99 | 23 | 27 | 24 | 28 | 24 | 28 | |
| 100-104 | 24 | 28 | 25 | 29 | 25 | 29 | |
| 105-109 | 25 | 29 | 26 | 30 | 26 | 30 | |
| 110-114 | 26 | 30 | 27 | 31 | 27 | 31 | |
| 115-119 | 27 | 31 | 28 | 32 | 28 | 32 | |
| 120-124 | 28 | 32 | 29 | 33 | 29 | 33 | |
| 125-129 | 29 | 33 | 30 | 34 | 30 | 34 | |
| 130-134 | 30 | 34 | 31 | 35 | 31 | 35 | |
| 135-139 | 31 | 35 | 32 | 36 | 32 | 36 | |
| 140-144 | 32 | 36 | 33 | 37 | 33 | 37 | |
| 145-149 | 33 | 37 | 34 | 37 | 34 | 37 | |
| 150-154 | 34 | 37 | 35 | 37 | 35 | 37 | |
| 155-159 | 35 | 37 | 36 | 37 | 36 | 37 | |
| 160-164 | 36 | 37 | 37 | 37 | 37 | 37 | |
| 165-169 | 37 | 37 | 37 | 37 | 37 | 37 | |
| 170+ | 37 | 37 | 37 | 37 | 37 | 37 | |
What is Company Car or Benefit in Kind Tax?
Whenever a vehicle is provided by the company to an employee, that is available for personal use, the employee must pay tax on the effective benefit that they receive from this.
To work out how much benefit they receive, the Treasury calculates this based on the car’s ‘P11d value’ compared to t receiving the same or similar amount in pre-income tax pay.
How is the P11d value calculated?
The P11d value of a car is made up from;
- Vehicle list price
- Any optional or non-standard extras
- Delivery fees
- Value Added Tax (VAT) at 20%
Can Company Car or Benefit in Kind Tax rates vary?
The BiK bandings for each vehicle changes every tax year and is often set to reward more ‘efficient’ models. This rule is in place to encourage both employers and company car drivers to choose ULEZ vehicles with lower emissions over conventional options.