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What is Benefit in Kind Tax & How Does it Work.

benefit in kind tax

What is Benefit in Kind Tax?

Benefit in Kind Tax, otherwise termed as (BIK), is a tax paid by employees who earn benefits excluding their salary such as a car owned by your company. If you are using a company-owned vehicle for your private benefit, you will need to pay a (BIK) as a contribution to the company’s vehicle tax. As the benefit in kind tax has monetary values, they are treated as taxable incomes. Therefore, BIK is also called notional pays, fringe benefits, or perks. The amount of will-be-payed BIK tax is defined by Her Majesty’s Revenue and Customs (HMRC) which refers to the tax authority of the U.K. government. Such tax can be either cash equal to the service, goods, or calculated through specific rules & regulations. Also Read: Apply to cancel road tax & get a refund by DVLA The General Benefit in kind tax can be applied to both tax & tax-free services offered by your company. Some of the most common taxable Benefits-in-kind can be:

  • Company Car
  • Medical Insurance
  • Child Care Vouchers

Below can be referred to as a tax-free BIK:

  • Free Meals
  • Cycle to Work Schemes
  • In-house Sport Facilities

Benefit in Kind Tax on a Company Car

The majority of BIK can be seen in using company assets by their employees, i.e. a company car. The amount of benefit in kind tax for a company vehicle can be divided into certain payable aspects considering the environmental impact of the benefited vehicle. The BIK tax amount is determined by evaluating CO2 emissions released by the benefited vehicle as one of the environmental impacts. Since 2019/20, there are generally 18 emission bands where cars that range to standard Real Driving Emissions Step 2 (RDE2) are measured and speared from 4% diesel supercharge. While the Non-taxable benefits include a registration charge, 1-year VED road tax & add-on modifications or installations.

What are Company Car Tax Rules?

The table below represents the 2020-2025 BIK tax bands based on the CO2 emissions of your company vehicle.

Cars registered before 6 April 2020:      
CO2 (g/km)Electric range (miles)2020-21 (%)2021-22 (%)2022-23 (%)2023/24 (%)2024/25 (%)
0N/A01222
1-50>13022222
1-5070-12955555
1-5040-6988888
1-5030-391212121212
1-50<301414141414
51-54151515151515
55-59161616161616
60-64171717171717
65-69181818181818
70-74191919191919
75-79202020202020
80-84212121212121
85-89222222222222
90-94232323232323
95-99242424242424
100-104252525252525
105-109262626262626
110-114272727272727
115-119282828282828
120-124292929292929
125-129303030303030
130-134313131313131
135-139323232323232
140-144333333333333
145-149343434343434
150-154353535353535
155-159363636363636
160+373737373737

 

How Does Benefit in Kind Tax Work?

Let’s consider the employee’s total income plus benefits are more than €1,950 annually, then he/she must pay the benefit in kind tax. Previous job income does not count towards the €1,950 limit. If the employee has worked on various sub-businesses under one company, her/his combined income from all the sub-jobs is measured against the €1,950 limit. Regardless of the shared relationship of the employee such as the employee’s husband/wife, family member, guest, towards the beneficiary, the tax must be paid. In the case of being the company’s director, the BIK tax must be paid no matter the director’s annual income.

How to Calculate BIK Tax?

As mentioned above, every car has to have a Benefit-in-Kind tax percentage band based on the vehicle’s CO2 emissions & P11D numbers which is nothing but the list price with extras & VAT just without the first-year registration fees. Benefit in Kind tax or company car tax can be calculated by multiplying the P11D value by the percentage band of BIK. After that, you can multiply the acquired figure by your tax bands like 20% or 30% in value. You can also visit UK’s official page for tax on company benefits to get more information.

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