Some employers offer non-monetary perks called benefits-in-kind. Often these are detailed up-front within job vacancies and include work phones, private health insurance, travel & entertainment expenses, and company cars. All benefits-in-kind are taxed to some degree – under benefits-in-kind (BiK) tax. In this article, we detail how benefits-in-kind tax affects company cars.

Which company cars are subject to benefits-in-kind tax?

Any employee using a company car must pay company car tax or benefits in kind tax. Though a few conditions lower the cost of benefits-in-kind tax for company cars, including:

  1. You contribute an amount;
  2. Your company car has low CO2 emissions (1-50g/km).

Which company cars have low CO2 emissions?

Hybrid or electric cars are better for the environment; they are classed as ultra-low emissions. Their value is typically based on the zero-emission figure, which is the distance they can drive before the batteries need recharging. To find out the zero emission figure of your company car, simply ask your employer.

Tesla is a brilliant example of a company car provider because all models are zero emissions. The Tesla Model 3 has been voted the most popular electric car in the UK and 16th best-selling car in the world

What is the rate of benefits-in-kind tax?

BiK tax rate is set out by HM Treasury; it is calculated based on:

  • Income tax (20%, 40%, or 50%);
  • Employer’s national insurance;
  • Employee’s national insurance.

Benefits-in-kind taxes are collected through PAYE along with income tax and national insurance tax. Though, the benefit-in-kind charge is currently at 1% in the lowest band and will only rise in 2022/2023.

To learn more about company car tax on Teslas and other sports cars, read our relevant article titled `Taycans, Teslas, and Tax`

Entrust a chartered accountant to help you

Unsure of your BiK tax rate or how to file the relevant taxes? Contact our chartered accountants today for no-obligation advice.