When organisations provide a car as a benefit to their employees HMRC class it as a Benefit in Kind (BiK) and as a result, you will need to pay company car tax.
How is company car tax calculated?
All taxable benefits have to be valued so HMRC can determine the correct amount of tax to be charged. Some employee benefits will have a specific value but with a car, the tax is based on the ‘use’ of the car so is calculated differently to other benefits.
For Ultra Low Emission Vehicles (ULEVs), which are cars with CO2 emissions of 75g/km and below, you will pay tax on the Benefit in Kind value. This value is determined by the cars P11D value (list price, including extras and VAT, but without the first-year registration fee and vehicle tax) and then multiplied by the BiK rate which is based on the CO2 emissions and fuel type. This figure is then multiplied by your tax rate (e.g. 20%, 40% or 45%) to calculate the annual amount of company car tax to be paid.
For cars with CO2 emissions above 75g/km, the taxable benefit value is the higher of either the gross annual sacrifice amount or the Benefit in Kind rate multiplied by the P11D value of the car. Once you have calculated the taxable benefit value, simply multiply that by your personal income tax rate and divide by 12 to get the monthly amount of BiK.
Where can I see the BiK value on the system?
Our online quotation system will automatically calculate the correct BiK value of the car you’ve chosen based upon the CO2 emissions, additional options, fuel type, P11D value and applicable tax rate according to the salary you’ve entered in the system. It will also take into account whether or not the car is a ULEV.
We’ll also display the ‘Monthly Net Amount’ (which is the impact on your take home salary) for the next three years as the tax rates charged by HMRC increase each year.
How do HMRC receive company car tax?
There are 2 main ways of paying company car tax and it’s important you check with your employer as to which will apply as this will affect whether you need to contact HMRC to advise them about your car.
Deduction (tax) at source – this means it’s deducted directly from your monthly salary by your employer and you won’t need to notify HMRC.
Via PAYE coding notice – HMRC will collect your company car tax by issuing you with an amended PAYE Coding Notice, which means that the tax generated by the Benefit in Kind will reduce your personal tax free allowance.
When you receive your new PAYE coding notice, please note that it will detail the annual BiK amount before your personal tax rate is applied.
Notifying HMRC about your car
If your employer doesn’t deduct at source then HMRC need to be notified that you have this employee benefit. Most employers will contact HMRC with this information via the P46 (Car) form, but you should confirm this with your HR department as it is the employee’s responsibility to ensure HMRC are informed of any changes. If the tax is not collected via your tax code for the year the benefit is received, it could mean an underpayment of tax which will be due the following tax year.
When contacting HMRC about your car, you may also be asked if you’re making any personal contribution towards your vehicle. As HMRC view salary sacrifice as a reduction in salary and not a personal contribution, you’ll need to answer ‘no’ to this question to ensure you are charged correctly.
You can calculate your BIK by using our company car tax calculator. Login or create your account, then go to "About Scheme", and our calculator is at the bottom of the page.