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What is BIK tax?

If you're lucky enough to be supplied with a company car then you could be liable to pay a charge known as Benefit In Kind (BIK) tax. The amount you're required to pay will depend on three things:

  • Price of your vehicle (P11D value)
  • Your annual earnings
  • CO2 emissions of the vehicle

As with all taxes the rules seem to alter constantly, and recent changes that came in to force on 1st September 2017 aim to provide the most accurate possible calculation of emissions. This means that the smallest change to the options on a vehicle, even something as seemingly insignificant as adding mats, can impact the amount of tax that needs to be paid. It's important to remember that if you're in any doubt about the rate that will apply to your chosen vehicle be sure to get in touch with HMRC to confirm.

How is BIK tax calculated?

As an example, let's take a hypothetical petrol Audi A4 that has a P11D value of £30,000 and emissions of 130g/km giving a BIK tax band of 25%. The BIK would be deemed to be 25% of £30,000 which is £7,500 and this would be charged at the marginal rate of tax, so either 20% or 40%, making the annual charge £1,500 or £3,000 respectively.

Value of car BIK tax band BIK Annual Charge 20% Annual Charge 40%
£30,000 25% £7,500 £1,500 £3,000
Value of car BIK tax band BIK
£30,000 25% £7,500
Annual Charge 20% Annual Charge 40%
£1,500 £3,000

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