What Are the Current Benefit In Kind (BIK) Company Car Tax Bands?

Harry just received the ultimate double whammy at work - his boss has offered him a promotion and one of the additional perks is the luxury benefit of a company car that he’ll have access to in his own time.

A month after driving around in the snazzy new company car, Harry checked his payslip. "Where has that tax come from?"

Confused, Harry launched onto Google and found a post by Lease Fetcher discussing how company car tax works. He realised he had to pay benefit in kind tax (or BIK for short) on the company car.

Part of calculating how much BIK tax you have to pay is knowing the CO2 emissions band it falls under. In this post we're going to discuss what the current BIK tax rates are for 2022-23 so you know exactly how much you're liable to pay for different company car options.

What is benefit in kind (BIK) company car tax?   

If you’re an employee that uses a company car for private use, you are legally required to pay a BIK contribution for the benefit you are receiving through the car.

This means if you take out a limited company car lease, you are liable to pay BIK tax on it, but you are not if you take out a self employed car lease, as you and the company are considered the same.

As the company car has a monetary value attached to it for your private use, the car is legally regarded as a Benefit in Kind. 

How much company car tax will I pay?

The amount of company car tax you actually pay depends on four key factors:

1. CO2 emissions in grams per km of your car.
2. P11D value of your car.
3. Your personal income tax band.
4. Whether you have full access to the car and whether you make any personal contribution towards its cost.

The main calculation is done as follows:

P11D Value of the Car x CO2 Emissions Band % x Personal Income Tax Band %

P11D Value

The P11D value of your car is a key component used to calculate the amount of company car tax you have to pay. 

Although it may sound like a complex mathematical equation, your P11D value is named after a form (P11D Form) that your employers file to HMRC detailing your benefits and expenses.

The P11D value of a car includes:

• Vehicle’s list price
• Delivery Charges
• Optional Extras
• Value Added Tax (VAT)

The P11D value doesn’t include the vehicle’s first year registration fee or road tax.

After you have been registered on the Government’s Pay As You Earn (PAYE) scheme, HM Treasury will then calculate the effective benefit you (the employee) receive from the company car based on the car’s P11D value. This is followed by applying a BIK tax rate on your vehicle.

CO2 Emissions

As we showed in the BIK rate table above, the emissions of your car are arranged into ranges with associated tax %.

Electric cars with zero emissions pay the lowest (currently 2%), with PHEVs sitting somewhere between 2 and 18% depending on their emissions and electric range.

4% extra on the % shown is added for diesel cars.

Non-RDE2 Compliant Diesels

As of April 2018, a 4% diesel surcharge was incorporated for diesel cars that are non-compliant to the Real Driving Emissions Step 2 (RDE2) test.

If a car fails to meet the required Euro 6 real-world emissions standards of Nitrogen Oxide (NOx), 4% is added to the cars relevant BIK tax band.

Any car emitting more than 80mg of NOx will face the additional 4% surcharge.

The RDE2 test was developed in response to Volkswagen’s ‘dieselgate’ emissions scandal. Volkswagen’s ‘official’ NOx and CO2 emission figures were incredibly inaccurate compared to real-road testing figures which sparked controversy through the automotive industry. 

Personal Income Tax Band 

The amount of  BIK tax you end up paying is dependent on your annual salary.

The current income tax bands for England, Wales and Northern Ireland are as follows:

• Basic Rate - Up to £50,000 - 20%
• Higher Rate - £50,001 to £150,000 - 40%
• Additional Rate - Over £150,000 - 45%

If you live in Scotland it works slightly differently. There are five marginal income tax bands instead of three:

• Starter Rate - 19%
• Basic Rate - 20%
• Intermediate Rate - 21%
• Higher Rate - 41%
• Additional Rate - 46%

In short, the higher tax bracket you fall under the more BIK tax you will be liable for. For more information on tax bands visit the HMRC website.

Access and Personal Contributions

If for whatever reason you don’t have access to your company car for a period of 30 consecutive days, the BIK tax that you owe will be reassessed to correspond with the amount of time you actually have use of the company car for.

If you make a one-off contribution to the payment of your company car, the amount you paid will be deducted from your final BIK tax liability. Working in a similar way, any payments you make to your employer for the personal use of the car will be deducted from the BIK tax charge.

How is it calculated?

To calculate the BIK tax on a company car requires the use of the following formulas:

P11D value x BIK CO2 percentage band = BIK value

Once you’ve got your BIK value we then have to calculate:

BIK value x Personal tax rate = Annual company car tax.

The following examples show the formulas in action using real-life car figures (correct as of 7/12/21)

Example 1:

Volkswagen Polo Match (1.0L TSI)

• P11D value: £18,425
• CO2 Emissions: 120g/km (29%)
• Employee’s income tax rate: Basic 20%
• BIK Value: £18,425 x 29% = £5,343.25
• Annual Company Car Tax: £5,343.25 x 20% = £1,068.65
• Monthly Company Car Tax: £89.05

Example 2:

Audi A3 Saloon Vorsprung 35 TDI S Tronic

• P11D value: £40,745
• CO2 Emissions: 127g/km (34% which includes 4% diesel supplement).
• Employee’s income tax rate: Higher 40%
• BIK Value: £40,745 x 34% = £13,853.30
• Annual Company Car Tax: £13,853.30 x 40% = £5,541.32
• Monthly Company Car Tax: £461.78

Fortunately, there are much easier ways to calculate how much tax you’ll have to pay for your company car. Company car tax calculators are readily available to save you doing the maths manually!

What other tax obligations do I need to be aware of?

In addition to benefit in kind tax, you'll have to pay road tax. Road tax is included in the lease price if you choose to take out a business contract hire deal (check out our guide "how does business car leasing work" for more on the pros and cons of leasing over buying company cars). 

If you've got a salary sacrifice lease car, then you still have to pay BIK tax.

If you have the option of a company car or car allowance, you'll have to pay tax on whichever is higher, the cash allowance or the BIK tax, regardless of which option you choose.

If you're leasing a van for business, check out our company van tax article for all your obligations.

And to round it all off, you can shave some tax costs - see our car lease tax deduction guide for more!

Conclusion

We hope we’ve managed to breakdown Benefit in Kind tax in an easy to understand way. We know it can be quite overwhelming at first, but using the current BIK tax table as a foundation is an absolute must!

Knowing the tax savings on low emission vehicles is as important as ever. If you want to know more about company car tax on electric cars, check out our blog for a deeper insight. 

If you have been offered a car allowance (a cash alternative) or a company car, our company car vs company car allowance blog is a great guide that highlights the most significant pros and cons for both options. If you're on the lookout for a car allowance calculator, we've worked with an accountant to walk you through how it's calculated. 

And if you've got your heart set on a certain model, be sure to compare electric car lease deals and hybrid lease deals with Lease Fetcher! We round up market leading offers in the UK to make your car lease comparison journey easy!