Benefit-in-Kind (BiK) is tax employees pay on any benefit they receive as part of their employment, whether that be private healthcare, support with childcare costs, a loan or a company car. For the latter, there are options for providing a car benefit to your employees that could help them make BiK savings.
In this guide you’ll learn about what Benefit-in-Kind tax is and how it works, how to calculate BiK on a company car and frequently asked questions.
Are you looking to help your employees to reduce their BiK tax and still provide them with a great benefit? Click here to see how we could help.
What is Benefit-in-Kind Tax?
HMRC requires your employees to pay BiK tax on any benefit they have access to for personal use, as well as business use. For a company car, the amount of BiK tax differs depending on the car your employee drives and their income tax rate. The amount is defined by HMRC and is calculated using specific rules for BiK tax for company cars.
How Does Benefit in Kind Work?
As the employer, you’re responsible for informing HMRC of any benefits you provide to your employees on top of their salary. Each year before July, you’ll need to complete a P11D form for every employee who receives a company car benefit. Alternatively, you can choose to report taxable benefits via the Pay as You Earn (PAYE) scheme. The latter will become the mandatory way for reporting benefits from 6 April 2026.
How to Calculate BiK on Company Car
With the removal of BiK tax for your employees and Class 1A NICs for you, petrol, diesel or self-charging hybrids are the most cost-efficient vehicles for employee car ownership schemes. You can choose how much your employees pay towards the life costs of the vehicle.
With employee car ownership schemes, you’re providing an affordable and accessible way for your employees to drive a brand-new petrol, diesel or self-charging hybrid.
Current BiK Tax Rates
A car’s CO2 emissions determines the BiK percentage rate, which can then be used to calculate how much BiK tax would be on any given company car. To complete the calculation, the P11D value of the car is also required. The P11D value is the list price, inclusive of VAT, delivery charges and any extras, but exclusive of the first registration fee and the first year of road fund licence. The sum to work out how much BiK tax is due is:
P11D value x BiK percentage rate x income tax rate of the employee.
As we start to transition to electric cars, current BiK rates for Electric Vehicles (EVs) are currently low, just 2%, which is an incentive to get businesses to take steps towards an EV fleet. The 2% rate is fixed until 2025, and won’t increase above 5% until after 2028.
For you as an employer, you’re required to pay Class 1A NICs on any car benefits you provide, and similarly, the amount depends on the cash value of the benefit.
Following the implementation of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), all new cars registered after 6 April 2020 are emission tested using this method to determine the appropriate BiK percentage rate.
For cars registered between 1 October 1999 and 5 April 2020, the CO2 emissions and corresponding BiK percentages are based on the New European Driving Cycle (NEDC) procedure.
Below are the appropriate percentages for company car benefits for petrol powered and hybrid powered cars for the tax year 2024 to 2025.
CO2 emissions (grams per km) | Electric mileage range | NEDC % | WLTP % |
0 | – | 2 | 2 |
1 to 50 | 130 and above | 2 | 2 |
1 to 50 | 70 to 129 | 5 | 5 |
1 to 50 | 40 to 69 | 8 | 8 |
1 to 50 | 30 to 39 | 12 | 12 |
1 to 50 | less than 30 | 14 | 14 |
51 to 54 | – | 15 | 15 |
55 to 59 | – | 16 | 16 |
60 to 64 | – | 17 | 17 |
65 to 69 | – | 18 | 18 |
70 to 74 | – | 19 | 19 |
75 to 79 | – | 20 | 20 |
80 to 84 | – | 21 | 21 |
85 to 89 | – | 22 | 22 |
90 to 94 | – | 23 | 23 |
95 to 99 | – | 24 | 24 |
100 to 104 | – | 25 | 25 |
105 to 109 | – | 26 | 26 |
110 to 114 | – | 27 | 27 |
115 to 119 | – | 28 | 28 |
120 to 124 | – | 29 | 29 |
125 to 129 | – | 30 | 30 |
130 to 134 | – | 31 | 31 |
135 to 139 | – | 32 | 32 |
140 to 144 | – | 33 | 33 |
145 to 149 | – | 34 | 34 |
150 to 154 | – | 35 | 35 |
155 to 159 | – | 36 | 36 |
160 to 164 | – | 37 | 37 |
165 to 169 | – | 37 | 37 |
170 and above | – | 37 | 37 |
Benefit-in-Kind FAQs
Still got a question about BiK? See if the answer is below in our frequently asked questions.
What are the best company cars for BiK?
EVs are cost-efficient company cars for BiK, as the rate for vehicles with 0g/km of CO2 emissions is just 2% at present.
How much is Benefit-in-Kind tax?
It depends on the car and its emissions, as well as your employees’ income tax bracket. The CO2 emissions tables of rates can be found here.
To calculate how much BiK would be for any employee, multiply the P11D value of the car by the BiK percentage, and then multiply that figure by their tax bracket, either 20%, 40% or 45%.
Does BiK get added to the employee’s salary?
No, a Benefit-in-Kind is a perk you provide to your employees, in this case a company car. It’s a taxable benefit, and they will pay BiK tax for a company car, however, it’s not included as part of their salary.
How do my employees remove BiK tax on their company car?
If they don’t need the car for personal use, you might choose to operate a pool car that isn’t made available for private use and BiK tax wouldn’t be applicable.
What is the most tax efficient way to have a company car?
With the low BiK rate for EVs, which is just 2% until 2025, and won’t increase above 5% until after 2028, electric cars are cost-efficient vehicles when chosen as company cars, particularly when delivered via a salary sacrifice. You can choose whether your employees simply pay the 2% BiK for their electric car, or whether they pay towards the cost of the vehicle via a gross salary deduction, with tax and National Insurance savings for both you and them.
How is BiK paid?
BiK tax or company car tax is paid to HMRC via an adjustment to the employee’s tax code.
What happens if employees don’t use a company car for personal use?
If your employee leaves their company car at the business premises overnight, meaning it isn’t used for commuting or other personal travel and is solely for business use only, then BiK tax isn’t applicable.
How Can Car Benefit Solutions Help?
We have an alternative way to provide a car benefit. The structure of an Employee Car Ownership Scheme (ECOS) transfers the ownership of the car to your employees by selling the vehicle to them using a Credit Sale Agreement (CSA). The car is then no longer classed as a company car, so BiK tax isn’t payable by your employees, and you don’t owe Class 1A National Insurance Contributions (NICs) on the benefit either.
Provide an attractive car benefit that still has the operational feel of a company car.
For more information about ECOS and how it works, click here or get in touch with us today.
