Benefit in Kind for Cars

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When organisations provide a benefit to their employees, HMRC class it as a Benefit in Kind (BIK). Drivers with salary sacrifice cars will need to pay Benefit in Kind, also known as Company Car Tax. When you quote for a car on our website, it’ll include the correct amount of Benefit in Kind. The amount is based on the CO2 emissions, any additional options, fuel types and value. It is also based on your income tax bracket.

For salary sacrifice electric cars, Benefit in Kind tax is only 2% until 2025, rising by only 1% each year until 2028. This means you can make considerable tax savings when choosing an ultra low emission vehicles.

Although the idea of Benefit in Kind for salary sacrifice cars might sound confusing, fear not as experts in this area we have prepared a handy guide to help.

In this article we will cover:

What is Benefit in Kind?

Benefits in Kind applies to any benefits which you receive from your company in addition to your salary. These are sometimes called ‘perks’ and can include anything from private medical insurance that’s paid for by your employer, to childcare vouchers and company cars.

Not all benefits in kind are taxed. For example, subsidised public bus services or bicycles provided to an employee to and from their workplace do not trigger BIK.

As an employee, you need to pay tax on your salary sacrifice car if you or your family use the car privately in any capacity, this includes commuting. This tax is deducted by your employer through Pay As You Earn (PAYE).

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What is P11D?

A P11D form is a HMRC document used by an employer to report certain expenses and benefits paid for or made available to employees. It is a form that needs to be submitted annually.

It gives HMRC details of any benefits in kind which are not included in the payroll and subject to PAYE and NIC (National Insurance Contribution) deduction throughout the year.

With this in mind, when we talk about P11D values below, you just need to remember that it means the value of the benefit which you have to pay tax on.

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How is Benefit in Kind calculated?

Unless you use your salary sacrifice car solely for business purposes, not including commuting, it is classed as a BIK and therefore you need to pay tax on it.

How much tax you pay is dependent on the following:

1

P11D Value of the Car

This is the list price of the car including any options and VAT.

2

BIK Rate Percentage of the Car

This is determined by CO2 emissions. In simple terms, the greener your car, the lower the amount of tax you will pay.

3

Personal Income Tax Rate

Basic rate is 20% if you earn up to £50,270pa, 40% for salaries of £50,270-£125,139, and if you earn over £125,139pa, the rate rises to 45%.

Benefit in Kind (Company Car) Tax Rates 2022-2028

Please see below for tax tables up to April 2028*. After April 2025, the company car tax rates on EVs will increase by 1% pa for 3 years. The rates will be 3% for 2025/26, 4% for 2026/27 and 5% for 2027/28. The company car tax rates for ultra-low emission cars (non EVs) emitting less than 75g/km will also increase by 1% from April 2025 for 3 years, rising to a maximum of 21%.

CO2 Electric Range 2022/25 2025/26 2026/27 2027/28
% % % %
0 2 3 4 5
1-50 >130 2 3 4 5
1-50 70-129 5 6 7 8
1-50 40-69 8 9 10 11
1-50 30-39 12 13 14 15
1-50 <30 14 15 16 17
51-54 15 16 17 18
55-59 16 17 18 19
60-64 17 18 19 20
65-69 18 19 20 21
70-74 19 20 21 21
75-79 20 21 21 21
80-84 21 22 22 22
85-89 22 23 23 23
90-94 23 24 24 24
95-99 24 25 25 25
100-104 25 26 26 26
105-109 26 27 27 27
110-114 27 28 28 28
115-119 28 29 29 29
120-124 29 30 30 30
125-129 30 31 31 31
130-134 31 32 32 32
135-139 32 33 33 33
140-144 33 34 34 34
145-149 34 35 35 35
150-154 35 36 36 36
155-159 36 37 37 37
160+ 37 37 37 37

*Add 4% for diesels up to a maximum of 37% (unless RDE2 compliant). Diesel plug-in hybrids are classed as alternative fuel vehicles, so the 4% diesel supplement does not apply to these vehicles irrespective of RDE2 compliance.

How do I calculate my Benefit in Kind rate?

For cars with more than 75g/Km CO2, the taxable benefit is calculated based on the higher value of either the gross salary sacrifice amount or the Benefit in Kind value.

For low emission cars (those with less than 75g/Km CO2), there are three main steps to calculating your BIK:

1

Multiply the P11D value of your car by the percentage band that your car will belong to.

2

Multiply this number by your income tax band – either 20%, 40% or 45%.

3

Divide this by 12 to get your monthly BIK amount payable on your car.

4

Calculate your BIK percentage band by using the table above or use this car tax calculator tool.

Benefit in Kind for Electric Cars

With BIK rates fixed until 2028, you can maximise your savings when choosing an electric or plug-in hybrid vehicle. To understand the savings, here is a price comparison of hybrid, electric and diesel options of the same car.

Let’s meet Anne. Earning £40,000 a year as a company administrator, Anne is 41 years old, lives in Chelmsford with her husband and two young children. She wants a roomy, reliable car for short journeys (taking the kids to after school activities, a weekly supermarket shop and visits to friends in the local area). The Kia Niro is an ideal choice for Anne but, on the basis of driving 5,000 miles a year, how much can she save by switching to electric?

Download our Benefit in Kind Guide

Car salary sacrifice remains a great company benefit that can put extra cash back in your pocket while giving you a brand new car. We’ll always have the most up-to-date information for you here, based on the latest Government guidance.

If you would like to find out more about Benefit in Kind, how to pay it and what affects you, please download your Benefit in Kind Guide.

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