What is BIK Tax?

BIK Tax

What is Benefit-in-Kind?

Any benefit that you can use in your personal time as well as during business hours, such as a vehicle, is considered a perk and HMRC will require you to pay tax. The type of tax HMRC requires you to pay is called benefit-in-kind, which is often abbreviated to BIK.

What is Benefit-in-Kind tax?

Benefit-in-kind (BIK) are perks or fringe benefits that are given by employers but are not included in the employees salary. They can include company cars, private medical insurance and child care vouchers.   

Some benefit-in-kind perks are tax free, for example: free meals, cycle to work schemes and in-house sport facilities. But, other perks will require you to pay tax.   

The amount of BIK tax you’ll need to pay is defined by HMRC, which can either be the cash equivalent of the service or goods, or is calculated by specific rules.   

One of the most common taxable benefit-in-kind perk is the use of a company car.

What is BIK tax on a company car?

A company vehicle is considered to be a taxable perk and results in the owner of the vehicle paying a benefit-in-kind tax value.   

The amount of BIK tax you’ll pay will be broken down into certain pay brackets which consider the environmental impact of the vehicle. 

BIK tax rates are determined in part by using the amount of CO2 emissions the car releases. There will be 18 emission bands, as of 2019/20, which you can find in the table below

CO2 (g/km) 

2019/20 BIK rate % - Petrol 

2019/20 BIK rate % - Diesel* (with 4% surcharge) 

0-50 

16 

20 

51-75 

19 

23 

76-94 

22 

26 

95-99 

23 

27 

100-104 

24 

28 

105-109 

25 

29 

110-114 

26 

30 

115-119 

27 

31 

120-124 

28 

32 

125-129 

29 

33 

130-134 

30 

34 

135-139 

31 

35 

140-144 

32 

36 

145-149 

33 

37 

150-154 

34 

38 

155-159 

35 

39 

160-164 

36 

40 

165+ 

37 

41 

* Cars that meet the standard Real Driving Emissions Step 2 (RDE2) are exempt from 4% diesel surcharge

Although the amount you’ll pay is primarily determined by the emission band, it also considers the price of the vehicle before non-taxable items are added. 

Non-taxable items include the registration fee, first-year VED road tax and any add-on mod con installations.  

This is evaluated along with your personal tax rate and type of fuel you’ll use. All of these factors will be calculated together to give you the overall amount of tax payable for that financial year. 

What does Benefit-in-Kind mean?

Benefit-in-kind essentially means you will have to pay tax on any vehicle given to you by your workplace.   

Depending on the vehicle you receive, or choose, the tax payable could be a considerable amount.   

Use the BIK calculator in this article to work out how much benefit-in-kind tax you’ll need to submit annually to HMRC. This will make sure you’re being as accurate as possible.   

The calculator will consider these variable factors: the retail price of the car, the CO2 emission band the car falls in and your personal tax percentage.   

If you’re finding that the tax amount is too high, there are ways in which you can reduce the amount. To lower the amount of BIK tax you have to pay, you could choose to change your vehicle.   

If you choose a cheaper model or a more modern vehicle that falls into a lower CO2 emission bracket, your tax could be cheaper. 

 

Do make sure your company car is well covered with comprehensive car insurance. Search online with us and get a quote today. 

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