A Guide to BIK Tax
What is BIK Tax?
BIK, or Benefit in Kind, Tax is a tax that employees pay for any benefits that may receive at work in addition to their normal salary. For instance, if an employee receives a company car that they use the private, as well as professional, use, they will have to pay BIK tax for that perk.
Every car has a different BIK band, which is dependent on the individual CO2 emissions and P11D value of that vehicle.
How do you calculate BIK Tax?
You can calculate how much BIK tax you will pay by multiplying the P11D value of your car by its BIK banding, then taking that figure and multiplying it again, this time by your personal tax band, which will be either 20% or 40%.
For example, say you were offered a SEAT Leon SC FR Technology 2.0TDi 150PS as a company car. The P11D value of that car is £22,265. The car emits 112g/km of CO2, which makes its BIK band 24% for the 2017/2018 financial year.
Using the calculation mentioned above, you would take the P11D value of £22,265 and multiply it by the 24% BIK band, which would give you the BIK value of £5,343.60.
You can then find the amount of BIK tax you would pay on the car by taking that figure and multiplying it by your personal tax band. If you pay 20% tax, you would multiply £5,343.60 by 20%, which would give you £1,068.72 as being the amount of annual BIK tax you would pay on that car.
Do I only have to pay BIK Tax on company cars?
No, you have to pay a BIK Tax on any company van that you use for private use as well, although it is calculated differently.
BIK tax for vans is calculated at a base rate of £3,000, so you would find your van BIK tax by multiplying £3,000 by your income tax band rate. So this could be £3,000 x 20% = £600 per annum.
When it comes to deciding what constitutes private use of a company van, reasonable use is taken into account. In other words, there would be no BIK tax to pay if you simply drove the van home at night. However, if you used the van to drive your family around at weekends that would constitute private use and you would have to pay a BIK tax.