Company car tax, officially known as Benefit in Kind tax (BIK), is the tax paid by an individual on the ‘benefit’ of receiving a company car for personal use.
First, the BIK value of the car is calculated. This is done by applying the BIK rate of the vehicle to its P11D value.
Every vehicle is given a P11D rating by the government, which is calculated as the effectively the cost of the vehicle + VAT. BIK rates are set as a % by the government depending on CO2 emissions.
To give an example:
The BMW 330e has a P11D value of £38,540. It’s level of emissions means it has a BIK rate of 12%. Therefore the BIK value is 12% of £38,450 = £4625.
The BIK the individual then pays is calculated by the income tax bracket you fall into against that value. If you fall into the 20% income tax bracket, you pay 20%. If you fall into the 40% income tax bracket, you pay 40%.
An individual in the 40% income tax bracket would pay 40% of £4625 which = £1850 per year.
As well as the employee paying BIK on their vehicle, the employer must pay employer’s national insurance on the vehicle’s BIK value. This is set at 13.8% but is reduced depending on the vehicle’s emissions, so will be less for electric and hybrid vehicle.
The government has set BIK rates to encourage employers and staff to choose electric and low emission hybrid vehicles. All electric vehicles will pay 0% BIK until April 2021, when the rate will increase to 1%. They have also reduced the rates for hybrid vehicles with low emissions to between 2-14%.
The favourable BIK rates for electric and hybrid vehicles can save you thousands of pounds in tax. We’ve included an example to put this into context for you:
Despite being £1440 cheaper than the Kia e-Niro the Audi is £3040 more expensive to run on BIK tax alone
|Kia e-Niro||Audi A4 SLine Saloon|
|P11D value of £36,440||P11D value of £35,000|
|BIK rate of 0%||BIK rate of 32%|
|BIK value of £0||BIK value of £11,200|
|BIK paid at 40% = £0||BIK paid at 40% = £4480|
Road tax, officially known as Vehicle Excise Duty (VED), is an annual tax paid to drive your vehicle based on its tailpipe CO2 emissions
VED is calculated based on a vehicle’s CO2 emissions and its listing price. The amount of VED you pay is determined by levels of emissions (in g/km) set by the government. The higher the emissions produced by your vehicle, the higher the VED you pay.
The government allow you to benefit from favourable first year rates, which then increase slightly to a standard rate you will pay from then on.
Any vehicle with a list price of over £40,000, regardless of the emissions it produces, have to pay an annual supplement for 5 years.
The government have introduced favourable rates for electric and low emission hybrid vehicles. Electric vehicles pay £0 VED in their first year and all subsequent years, meaning they pay no road tax. Plug-in hybrid’s enjoy a reduced first year rate of as low as £15 and a subsequent rate of about £140.
However, the premium on all cars listed at >£40,000 does apply to electric vehicles. So this must be included when calculating your annual road tax and can see the cost increase.
There is currently one congestion charge in the UK which applies to an area in central London . An Ultra-low emission zone charge applies to the same area in London as the congestion charge. Low-emissions zones are found in other cities in the UK such as Brighton, Glasgow, Oxford and Norwich, with plans to adopt them in Leeds, Nottingham, Derby, Birmingham and Southampton.
The London Congestion charge is £11.50 for daily use with a further £12.50 fee on top of this for use of the Ultra-low emissions zone
Low emissions zones charges in other areas of the UK mostly apply to buses but the ones that charge cars cost around £10 per day.
Electric vehicles and low emission hybrids are exempt from congestion and low emissions zone charges. Although they aren’t widely used outside of London right now, as more and more are introduced you can save hundreds of pounds per year if you are a regularly driving around city centres.
Fuel benefit charge is the tax payed by an individual if they get their vehicle fueled by their business. The government see this as a benefit and hence its taxable.
It is calculated in relation to the BIK rate of your vehicle. Each year the government sets a fixed figure for the value of fuel benefit, this year its £24,500. You then apply your BIK rate to this figure to find out the value of your fuel benefit, which you then pay against your income tax bracket.
If you’re BIK rate is 21%, the value of your fuel benefit would be £5145. You’d then pay your fuel benefit at either 20% or 40% of this figure. Your fuel benefit at 20% would be £1029.
Electric vehicles don’t have to pay a fuel benefit charge on electricity. The same applies to the electricity used by plug-in hybrid vehicles but they do have to pay it on the petrol or diesel they use.
Fuel duty is the tax payed on petrol and diesel.
The rate of fuel duty is set by the government. At the moment for petrol and diesel vehicles is is 57.95 pence per litre.
There is no fuel duty on electric vehicles. Using electricity to ‘fuel’ your vehicle is currently not taxed. Plug-in hybrid vehicles still pay fuel duty on the petrol and diesel they use but not on the electricity they used to charge their battery. Fuel duty is one of the largest tax contributors for the UK government, as fuel duty dwindles due to more motorists switching to electric vehicles we are likely to see other taxes introduced to compensate for their loss.Company Car Tax Calculator