Receiving a company car is an amazing perk of any job, which not only enhances their personal mobility but their professional status. This benefit for employees can even be the deciding factor between a particular job. However, having a company car comes with the responsibility of understanding Benefit In Kind tax (BIK) – the tax on employees who receive perks or benefits from their employment that are not included in their salary. For those with company cars, this tax will impact their pay. Because of this, the thought of having a company car may not seem as beneficial as you initially thought if you don’t understand what BIK is and how much you will have to pay.
Yorkshire Fleet are here to help! In this blog we aim to demystify BIK for company cars, providing you with more of an understanding of how it is calculated, the factors that affect it, and the ways you can reduce it, for example choosing an electric vehicle (EV) to reduce BIK for company cars.
So whether you’re choosing your first company car or looking to better manage your existing BIK commitments, this guide will give you the knowledge you need to make informed decisions. Let’s take a look into the essentials of company car tax and help you better navigate the complexities of BIK with confidence.
What Is Benefit In Kind
Choosing a company car is an exciting milestone in any person’s professional life. But with this comes the added Benefit In Kind tax employees will need to pay. But what exactly is Benefit In Kind? A BIK is any benefit an employee receives from their employer excluding cash, for example, a company car. These benefits are subject to taxation because they are seen as a form of income in the eyes of HMRC. Since company cars are such a big benefit, it will attract a specific BIK tax.
BIK tax for company cars is calculated by the market value of the car and how much CO2 it emits. This means that the tax isn’t just about the value of the car, but also takes into account its environmental impact. This is to encourage companies and employees who are thinking about getting a company car to consider more eco-friendly vehicles.
You may not know but there are other types of benefits that are considered to be a BIK aside from company cars, for example, private medical insurance, loans given at a cheap rate, and accommodation that is owned by the employer. Just like company cars, these benefits will have their own tax implications.
Understanding BIK is crucial as it will affect your employees net income. Since the value of the company car will be treated as taxable income, the higher the value of the vehicle and the more it pollutes, the more tax your employees will have to pay. Because of this, when it comes time to choose a company car, your employees may want to pick their dream car, but they will also want to consider how much tax they will have to pay because of it.
Understanding BIK For Company Cars
Now that you know what BIK for company cars is and what affects it, let’s take a look at how it is calculated so you can better decide what company car you will offer. It’s important to consider how much tax there is on the car, so your employees can determine whether it’s something they can afford and whether it’s worth it or not. Although there are many benefits of offering company cars, it is not free unfortunately and the tax that will need to be paid is something you shouldn’t overlook. The BIK rates is determined based on the following:
- The P11D value of your car:
The official list price of your company car is known as the P11D value. This is essentially the retail price of the car including VAT and delivery charges but excluding road tax and vehicle registration. The P11D serves as the base value for the BIK tax calculator.
- CO2 Emissions:
The percentage of the P11D value that will be used for BIK depends on the CO2 emissions of the car. Cars with lower emissions have a reduced BIK rate, which makes environmentally friendly choices look more attractive. The government publishes BIK percentage bands which are updated every year.
- Fuel Type:
Different types of fuel carry different BIK implications. For example, diesel cars attract a higher BIK rate unless they meet specific emission standards.
Calculating BIK tax is done by multiplying your company car’s P11D value by its BIK percentage rate. Then take the BIK value and multiply it by your personal tax band to work out the total of how much tax you will pay per year.
Is BIK On Electric Cars Different?
EVs are becoming more popular for company cars because BIK tax allowances are more favourable compared with petrol or diesel engine vehicles. This is because of the government’s effort to encourage the adoption of more environmentally friendly vehicles in order to reduce emissions. For instance, the BIK on electric cars is 2%, which is fixed until April 2025. For vehicles that create more pollution such as petrol or diesel cars, the BIK rates can go up to 37%. Which is a huge difference.
Additional Benefits Of BIK On Electric Cars
There are attractive benefits of employees choosing an EV for as their company car, that since these EVs don’t use petrol or diesel, they don’t have to pay as much for electricity as you do for fuel. Additionally, if you as the employer provides the electricity, the employee won’t be taxed the same as fuel allowance. Another reason why you may want to consider choosing an EV for your company car is that they have significant lower running and maintenance costs.
BIK on electric cars offer substantial advantages that not only benefit the employee but also support the environment. With these EV incentives, the benefits of opting for an electric company car make them an attractive option for both employers and employees.
More On BIK For Company Cars
Understanding the BIK tax implications for company cars is crucial for making informed decisions about your company vehicle options. Choosing a company car is an exciting process, but you need to consider all of the tax implications so you can pick the best car for you. EVs offer a financially attractive choice due to EV incentives such as lower BIK rates compared to traditional petrol or diesel cars. This is part of a broader strategy to encourage the adoption of environmentally friendly technologies and reduce carbon emissions. For those considering their options, it’s important to weigh the benefits of lower BIK rates against factors like charging infrastructure and lifestyle compatibility.
Yorkshire Fleet For Company Cars
Now that you’ve decided to offer company cars it’s time to decide on your provider. Yorkshire Fleet are here to help! We understand that every business is different, we will strive to offer the most tax efficient car leasing solution for you every time. Not only that but we are experts in the industry, and can offer the best advice so you can receive a plan that is best suited for your business and your employees. Get in touch today for the best company car solution today.
