Benefit in Kind (BIK)
For most company car drivers BIK will be a term they are familiar with but not necessarily one they understand. The one thing we know for certain is that Mr. Taxman has taken a chunk of our pay each month and we don’t like it!
Benefits in Kind are perks or benefits you receive from your employment that are not included in your salary. In this article will be focusing purely on company cars.
We all want that nice car – a lot of flash for very little cash. With the wide range of funding options available to consumers you can often get a higher spec car for less money than you first thought.
For example, if your employer is willing to spend £350/m leasing your company car you may have your sights on an Audi A4. However, the leasing company tells you they have the next model up (A6) available for £10/m less than the A4.
Seems too good to be true?
Yes and No.
Deals like this happen quite regularly when leasing vehicles so it’s very possible this could happen. The problem is the driver will pay a higher BIK if they go ahead with the A6. Again this is something we also see quite often. You can get the car cheaper but are you willing to pay more tax?!
There are several factors you need to consider when choosing your company car to ensure you aren’t taxed for more than you can afford.
So, how can we work out BIK?
Every car and even every spec of the same car will have a different BIK tax. The following information is used to work out how much tax you will pay…
P11d – The P11D value of your car comprises the list price, including VAT, plus any delivery charges, but does not include the car's first registration fee or its annual road tax.
CO2 Emissions (g/km) – Lower emissions = Cleaner car/ Lower BIK. Higher emissions = Higher BIK. It’s as simple as that. Company Car Tax Tables are available online which convert the emissions your car emits in to a taxable percentage of your p11d value.
Fuel – Diesel cars will pay a 4% surcharge over Petrol. However we now have zero emission and low emission vehicles that use Hybrid or Full Electric Motors. This is where it gets interesting!
Income Tax – Someone who pays 20% income tax will pay half what someone in the 40% tax bracket will pay. This can make a huge difference.
For this example we will compare a typical senior executive company car in Diesel and Petrol/ Electric Hybrid – The BMW 5-Series M Sport Auto.
So, the 520d has a P11d value of £41,325 before adding any extras. It emits 119g/km of CO2 which equates to a 31% taxable rate on the P11d meaning the BIK value of this car is £12,811 per year.
If your annual salary pays income tax at 20% you will be deducted £2,562/ year to drive this car. If we divide that number by 12 it shows that you will lose £213.50 each month if paid monthly. If you’re in the 40% income tax bracket you will pay £5,124/ year or £427/ month. Twice as much.
The 530e however only emits 49g/km of CO2 as it uses a Petrol/ Electric hybrid engine. Even though it is over £8k dearer and more powerful than the diesel it is cheaper on BIK.
For a 20% earner your monthly figure drops from £213.50/m to £133.17/m and £427/m to £266.33 if you’re in the higher 40% bracket. The gap increases on the new 2020/21 rates.
As you can see the government are clearly trying to incentivise lower emission vehicles. Even greater savings can be made on a full electric vehicle (EV).
From 2020, Cars emitting 0-50g/km CO2 and capable of an all-electric range of over 130 miles will only be subject to 2% BIK.
- 70-129 miles – 5% BIK
- 40-69 miles – 8% BIK
- 30-39 miles – 12% BIK
- <30 miles – 14%
Between now and then there are a range of new hybrid and EV vehicles due to hit the market. Vehicles in these lower brackets will provide great saving for the company car driver. Lower BIK means increased wages and a new car at the same time.
“Happy employees lead to happy customers, which leads to more profits”
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