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How Do I Calculate BIK on a Company Car?

Oct 25, 2023

A company car can be the sort of perk that will help you attract and retain employees. But company cars aren’t free! Company cars in your fleet may be subject to benefit in kind (BIK) taxes.

In this post we’ll explain how BIK tax works for company cars, and let you know how to calculate how much you’ll have to pay.

For more information on how we can help you with all aspects of fleet management, get in touch with us on 020 8290 9099 or email us at commercial.motor@anthonyjones.com.

What is a Benefit in Kind?

A BIK is a perk or a bonus that an employee receives beyond their salary. Some Benefits in Kind will be tax free, while others will fall under a ‘taxable benefit’.

When is a Benefit in Kind Tax Free?

Some BIKs may be experienced in the workplace itself, such as free drinks or snacks, onsite gyms, or cycle to work schemes. As such, these sort of BIKs are tax free.

When is a Benefit in Kind Taxable?

If an employee received a BIK outside of the work environment, then they become “taxable benefits”. And a company car usually falls into this category.

What is the BIK Rate of a Company Car?

A number of factors determines the tax rate on a BIK. For a company car, the BIK rate depends on the employee’s tax bracket and the car’s CO2 emissions, fuel consumption figures and its P11d value.

A car’s P11d value, which is a measure of the car’s overall value including VAT and delivery charges. However, some expenses, such as the initial registration fee and vehicle excise fee (road tax) payments, do not account for the car’s overall P11d value.

How to Calculate BIK on a Company Car

The most straightforward way to calculate BIK on a company car is to use the government’s handy company car tax calculator.

You’ll have to fill in an online form, specifying whether the car’s provided via an Optional Renumeration Arrangement (and if so, the “amount foregone in respect of car”). You’ll also have to specify the car’s availability during the current tax year, the list price of the car (including VAT and accessories), any contributions made by the employee, information about the car’s fuel and engine, and more.

So you’ll need to have a lot of information to hand before you can use this tool. But once you’ve supplied all the relevant figures, the tool will automatically calculate the BIK value based on the current tax year. You can guarantee, then, that you’ll get the most up-to-date figures, whereas other online sources might be based on rates from previous financial years.

How To Lower Company Car Tax

Remember that the BIK rate is based on a car’s value (it’s P11D) and its CO2 emissions. So you can help employees save money on the BIK rate they pay through choosing cars with lower RRPs, and from lower CO2 emissions brackets.

The BIK rate is also calculated based on to what extent the employee uses the car in their personal life. With this in mind, you can also help employees save on their tax rate through only allowing them to use the vehicle during certain hours, or on a part-time basis.

This is worth considering as, while all employees will value the car that comes with the job – and some employees will treat it as a dealbreaker, there will be some who’ll resent the extra tax they’ll have to pay on their company car.

For more information on how we can help you with all aspects of fleet management, from company cars to HGVs, get in touch with us on 020 8290 9099 or email us at commercial.motor@anthonyjones.com.

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