What is Benefit-in-Kind tax and how is it calculated?

No one wants to pay more tax than they have to, so let us help you to cut your Benefit-in-Kind company car tax bill

James Wilson
Nov 10, 2020

Benefit-in-Kind (or BiK) is the term used to describe a tax the UK government places on those who have use of a company car for private journeys - including commuting. People often use the terms ‘Benefit-in-Kind’ and ‘company car tax’ interchangeably but be aware that the former can also mean other taxable benefits, too, such as being provided with accommodation. For the purposes of this article, though, we use them to mean the same thing.

It is worth noting that many car manufacturers (and the government) quote ‘BiK rates’ which can confuse things further. What exactly these are we will clarify later. How much Benefit-in-Kind a person pays centres around four main elements; the car being used, whether or not the car is available all the time, if the driver puts some of their own money towards the car and finally, the type of company car scheme the driver is enrolled in.

On a separate but related note, if an employer pays for the fuel an employee uses during personal journeys, there will be tax to pay on that, too. There really is no such thing as a free lunch… Homing in on how the car you drive can impact BiK tax, there are several factors that have an impact; its official emission figures, the emission standards it meets, its list price, its fuel type and in the case of an electric car and its range. Company cars are a big market and hence all the information you need to calculate your BiK costs should be freely available.

Don’t panic if some or all of what has been discussed so far doesn’t make sense to you, everything is explained below in easy to follow sections. These include how BiK tax is calculated and an example of how to calculate Benefit-in-Kind yourself. Other sections include how to find a car which qualifies for low BiK so you have less tax to pay, examples of low BiK cars and how BiK works with used cars.

How is Benefit-in-Kind calculated

Benefit-in-Kind costs for a car are calculated by multiplying a car’s 'P11D' value (which is closely related to its list price) by its BiK rate and then by your income tax bracket (20%, 40% or 45% depending how much you earn). BiK rates are set by the UK government and are determined by how much CO2 (carbon dioxide) a car emits, which fuel it's powered by and the emissions standard it meets. Currently, BiK rates range from 0% to 37%.

As a simple example, if a car’s P11D value is £10,000 and it has a BiK rate of 10% and the employee who will be driving the car is in the 20% income tax bracket theannual BiK tax bill will be £200. To get your head around how that's calculated, the calculation is as follows:

  • Cost of car: £10,000
  • BiK rate: 10%
  • Income tax rate: 20%
  • 10% of £10,000 equals £1,000
  • 20% of £1,000 equals £200
  • Annual BiK tax equals £200
  • Monthly BiK tax equals £16.67

With this example the company car tax due would be £200 for the year. Divide that by 12 and you get the monthly amount, which in this case amounts to £16.67. Keep reading for an example with a specific car to help you get your head around the amount of tax you can expect to pay.

How to calculate Benefit-in-Kind tax

BiK figures are typically published for most cars, so you may be able to find the figures rather than needing to calculate them yourself. If you can't find them or want to be sure of your exact BiK liability, the following bits of information are needed to work out a car's BiK costs based upon the CO2 emissions:

  • The car's P11D value
  • The car's CO2 emission figure
  • The car's fuel type/emissions standard met
  • The car's official range (if electric/plug-in hybrid)
  • Your income tax band (determined by your overall income)

This list of requirements assumes BiK rates for a specific car are not readily available and must be worked out from CO2 emissions. Most manufacturers make BiK rates for each of its models and trims easy to find. For example, searching online for ‘Ford Fiesta BiK rates’ should quickly bring up information for the Ford Fiesta. If online searches fail, though, you can work the cost out, using the format above.

To do this, start by looking for P11D values - continuing to use the Ford Fiesta as an example, searching online for ‘P11D for Ford Fiesta’ should do the trick. Do bear in mind, when looking for this data that figures change regularly, so it's best to stick to manufacturer and UK government websites for the most accurate and up-to-date information.

Once you've found a suitable website, there should be either a table on the page or a brochure to download which provides all the P11D values (and in some cases the BiK values, too) for the desired make and model. As the specification of a car can affect both its emissions (cars with tonnes of in-car technology and supersized alloy wheels typically weigh more than basic models, and as a result use more fuel) and impact the list price (the more kit a car has, the more expensive it will be), meaning there will also be a different P11D for each trim. It may well be worth making note of a few P11D values for the trims you are considering for comparison.

Handily, P11D values are normally quoted alongside carbon dioxide (CO2) emissions. So make a note of these, too. Company car tax figures are now calculated from what's called the 'WLTP' emission tests (a far more realistic test, which replaces that old 'NEDC' test format) so make sure you are looking at the right CO2 emission figures.

Once you've found official CO2 emission figures, you need to consult a BiK rate table. The table below shows BiK rates for the 2020-21, 2021-22 and 2022-23 financial years, as this figures change annually, with rates typically going up every year, and cars with the highest emissions facing the steepest tax charges.

Vehicle

CO2

Emissions

(g/km)

Electric

range

(miles)

2020-21 Financial Year

BIK Rate (%)

2021-22 Financial Year

BIK Rate (%)

2022-23 Financial Year

BIK Rate (%)

Petrol,

Electric,

RDE2

Diesel

Non-

RDE2

Diesel*

Petrol,

Electric,

RDE2

Diesel

Non-

RDE2

Diesel*

Petrol,

Electric,

RDE2

Diesel

Non-

RDE2

Diesel*

0

Any

0

-

1

-

2

-

1-50

130+

0

-

1

-

2

-

1-50

70-129

3

-

4

-

5

-

1-50

40-69

6

-

7

-

8

-

1-50

30-39

10

-

11

-

12

-

1-50

<30

12

-

13

-

14

-

51-54

-

13

-

14

-

15

-

55-59

-

14

-

15

-

16

-

60-64

-

15

-

16

-

17

-

65-69

-

16

-

17

-

18

-

70-74

-

17

-

18

-

19

-

75-79

-

18

22

19

23

20

24

80-84

-

19

23

20

24

21

25

85-89

-

20

24

21

25

22

26

90-94

-

21

25

22

26

23

27

95-99

-

22

26

23

27

24

28

100-104

-

23

27

24

28

25

29

105-109

-

24

28

25

29

26

30

110-114

-

25

29

26

30

27

31

115-119

-

26

30

27

31

28

32

120-124

-

27

31

28

32

29

33

125-129

-

28

32

29

33

30

34

130-134

-

29

33

30

34

31

35

135-139

-

30

34

31

35

32

36

140-144

-

31

35

32

36

33

37

145-149

-

32

36

33

37

34

37

150-154

-

33

37

34

37

35

37

155-159

-

34

37

35

37

36

37

160-164

-

35

37

36

37

37

37

165-169

-

36

37

37

37

37

37

170+

-

37

37

37

37

37

37

 
While the table above might seem daunting at first, it is fairly straightforward once given a few pointers. Firstly, the government is trying to encourage company car drivers to fully electric or hybrid cars, with electric cars producing no tailpipe emissions and plug-in hybrid models offering very low fuel consumption - if they're charged regularly. This is why electric cars and plug-in hybrids qualify for the lowest BiK rates for the next three financial years.

Secondly, hybrid cars come in all shapes and sizes (for a refresher on the different types, take a read of this guide to hybrids) - with the main division between standard hybrids with small batteries that cannot be charged by plugging the car into the mains and plug-in hybrids with larger batteries and the ability to plug them in to top the batteries up.

Due to their larger batteries, plug-in hybrids offer much greater electric range (provided you charge them once the batteries are depleted), and the greater the range a hybrid can travel on battery power alone, the less BiK is payable. Currently, the best plug-in hybrids come with a range of 30 to 40 miles when fully charged, compared with up to 300 miles or so for the best fully electric cars, so there is a bit of tax gap between electric cars and plug-in hybrids with the next lowest BiK charges.

No matter how far a plug-in hybrid can theoretically travel, if its official CO2 emissions are more than 50g/km it will be treated the same as a petrol or diesel car. Bear in mind here that not all petrol and diesel cars are treated equally. The third thing to consider is that under each financial year there are two columns; one which gives the BiK rate for petrol, electric and RDE2-compliant diesels and another for non RDE2-compliant diesels. Simply use whichever column is relevant to the car being looked at.

RDE2 is another emissions test that measures the emissions of gases such as nitrogen oxides (NOx). Diesels that emit too much of the monitored gases are classed as non-compliant and have a 4% premium added to their BiK rates, making them more expensive to tax. As a note, hybrid diesels do not have to be RDE2 compliant.

Once you find the respective BiK rate for a car you need to multiply the car’s P11D value by that BiK percentage. For example:

An entry-level Ford Fiesta has a P11D value of £16,410.00. It emits 121g/km of CO2. For the 2020/2021 financial year, this means a BiK rate of 27%. The total company car tax you're liable for over the year, therefore, is calculated as follows:

  • 27% of £16,410.00 equals £4,430.70

Then, use the income tax bracket you're in to determine the next step (depending whether you're a 20% taxpayer or are liable for 40% or 45% rates) to do the last step. Continuing using the numbers above, if you were in the 20% income tax bracket you'd do the following:

  • 20% of £4,430.70 equals £886.14

This means that your annual BiK tax cost would be £886.14, which works out at around £74 per month. If the car's CO2 emissions were higher, you'd have to pay more. Similarly, if the car's P11D value were more, the eventual cost of tax would also be higher.

How to find a car with low BiK

Finding a car with low Benefit-in-Kind liability is both very simple and quite hard. The simple part is in defining what kind of car qualifies for low BiK. For petrol and diesel models a car needs to be inexpensive and have low emissions for the lowest company car tax costs. If you're considering a diesel, you'll want to hunt down an RDE2-compliant model to avoid the 4% surcharge as well.

Bear in mind, however, that if a non RDE2-compliant diesel alternative is dramatically cheaper, it could still work out cheaper to tax. If you've narrowed down your options to a couple of diesel models where there's a big price and emissions difference, therefore, get like-for-like figures for these cars to establish exactly which one is cheapest for you.

As for plug-in hybrids, the more expensive a model is, the more range it needs to be capable of from a full charge to offset the higher list price. As for electric cars there aren’t any rules for the 2020/2021 financial year, as no matter how much it costs there is no tax to pay. Even when BiK rates increase in 2021 and subsequently in 2022 they only go up by 1% each time, so BiK will still cost motorists very little each year. This makes all electric cars a safe bet for low company car tax for the next few years. 

As mentioned previously, whether or not a company car is available all the time and whether a driver puts some of their own money towards it can affect BiK charges. To qualify for a reduction in tax due to lack of access, a car has to be unavailable for 30 consecutive days. Also, for personal contributions, these have to be specifically for private use and nothing else, with the amount agreed with your employer. Overall, the simplest way to reduce your BiK costs is to go for a low-emission car, with electric cars proving particularly affordable in company car tax terms in 2020, 2021 and 2022.

Examples of low BiK cars

Stuck for inspiration of which low BiK cars to look at? Below we've rounded up some of the best cars for low company car tax, all broken down by fuel type.

Electric

Tesla Model 3

BiK rate for 2020/2021 0%

Tesla can seem like a car equivalent of Apple, in that its products are high-tech and super desirable. This means that they aren't cheap, but as they're all electric, they could still be a great value option when it comes to BiK tax.

The Model 3 is Tesla's most affordable car (though prices still start at more than £40,000) and comes with a range of 267 miles on a full charge or upwards - depending which version you go for. And it can seat five and accelerate from 0 to 60mph in 5.3 seconds in entry-level form. That's reasonably quick for a sports car, let alone a sensible electric car.

Kia e-Niro

BiK rate for 2020/2021 0%

The Kia e-Niro might not look like much but it is an excellent electric car. It comes with a long range of 282 miles - impressive for a reasonably inexpensive electric SUV - and is practical enough to handle being your main family car. It's even pretty speedy, though not in the same league as the Tesla above. Plus, it comes with a seven-year/100,000-mile warranty.

Hybrid

Hyundai Ioniq Premium SE Plug-in Hybrid

BiK rate for 2020/2021 10%

Hyundai’s Ioniq isn't exciting, but it is one of the best plug-in hybrids on sale. New models come with 32 miles of range from a full charge plus bags of standard equipment. On top of the low-emission plug-in hybrid tech (remember that you need to charge plug-in hybrids regularly and cover as much of your journeys on electric power as possible to minimise your emissions), the Ioniq PHEV is also comfy, practical and well built.

Toyota Corolla Icon 1.8-litre Hybrid

BiK rate for 2020/2021 23%

The Toyota Corolla hybrid is a 'conventional hybrid' that can't be plugged in to top up the battery. Instead it gets its charge by harvesting energy that would otherwise be lost through braking. This means you get far less electric range than with a plug-in hybrid that is regularly charged, but don't have to worry about manually charging the car.

The Corolla is built in Britain and available as either a hatchback, saloon or Sports Tourer estate. Toyota has done such a good job with the Corolla that it is a genuine alternative to more obvious rivals such as the Ford Focus and Volkswagen Golf.

Petrol

Ford Fiesta Titanium 1.0-litre EcoBoost

BiK rate for 2020/2021 26%

The Ford Fiesta has long been the best selling car in the UK. It is easy to see why as well, thanks to the fact it offers an enjoyable drive, punchy engines, decent equipment levels, keen pricing and a good track record for reliability. Although small, the Fiesta can still transport four adults in relative comfort over long distances. If you regularly carry multiple passengers just make sure to get a five-door model, as this means you don't have to worry about letting people in and out of the back seats all the time.

Diesel

Vauxhall Astra 1.5-litre Turbo D SRi Nav

BiK rate for 2020/2021 21%

Vauxhall was ahead of the curve in getting its entire range of cars RDE2 compliant, which makes the Astra a great low-tax company car option. Diesel engines typically produce less CO2 emissions than petrols (but more of other pollutants, such as NOx), so without a 4% surcharge to worry about the Astra qualifies for relatively low BiK. On top of cleaner diesel engines, the current generation Astra is relatively fun to drive, well-built and practical. Throw in low prices and this is a very savvy low-tax choice.

How BiK works with used cars

Goign for a used car would seem like an excellent way to cut BiK tax bills as used cars are much cheaper to purchase. Unfortunately, the UK government doesn’t look at it this way, as company car tax on second-hand cars is calculated using the P11D value of a car when it was new.

Maintenance bills are likely be higher on used cars than new cars, so do bear that in mind if you're considering spending the same amount you would have done on a new car with a used car. Since even one-year old used cars are typically many thousands of pounds cheaper than new versions, however, you're still likely to be far better off overall with a used car compared with a new one.

How BiK works for cash allowance and salary sacrifice schemes

Some companies offer cash allowances to employees rather than a company car scheme. Tax for such arrangements is a little different to regular company car schemes. The reason being is that the government will charge whichever is higher out of BiK tax or income tax.

It is a similar story with salary sacrifice schemes. The tax that you have to pay is whichever is higher out of BiK or income tax, based on the amount of salary sacrificed to get the benefit.

 

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