Car Leasing Benefit in Kind (BIK)

When a company vehicle and company fuel are made available to an employee or company director for personal usage as well as business use, it is considered an employment benefit and is subject to income tax. The "benefit in kind" value determines how much income tax the employee or director pays on the lease vehicle and fuel. So, when your employer or the company has provided you with something that has a financial benefit, it will attract a taxable value.

How is BIK calculated for a company car?

There are three factors that are taken into account when calculating company car tax/BIK:

  1. The employee's personal tax bracket
  2. The P11d value of the car (combined listing price + VAT, delivery charges, plus any options worth over £100)
  3. The emission band and engine type of the car

The BIK rate payable by the employee is worked out by multiplying the emission band and engine type, by the P11d value. This number is then multiplied by the personal tax bracket. This final figure will be deducted from the employee's salary or wages each month.

Benefits of BIK to the employer

BIK, as the phrase suggests, is a benefit to the employee, so employers must pay Class 1A National Insurance Premium (NIC) to reflect this, with Class 1 NIC being the P11D value of the vehicle. Based on the corresponding BIK rate. It depends on the official CO2 emissions and the type of fuel.

The cost of Capital Expenditure needs to be counted, with most cars using standard capital allowances, even though some brand-new Ultra Low Emission Vehicles are available for a 100% first-year write-down as an element of the Enhanced Capital Allowance scheme.

What are Benefit In Kind (BIK) rates?

Besides other vehicle taxes such as Vehicle Excise Duty, BIK Rates are significant to the driver of the vehicle and are chiefly CO2-based. These extra costs to businesses and their drivers have led to a substantial increase in the number of electric and hybrid cars being leased.

This adjustment coincided with the implementation of a new set of BIK rates designed to encourage the use of pure-electric vehicles. Until the end of March 2025, pure EVs are now rated at 2%. PHEVs continue to earn exceptionally cheap rates, but they are now evaluated based on their pure-electric range. Those who can travel longer distances on electric power pay a lesser BIK charge.

BIK rates for company cars currently start at 2% for electric cars, 23% for the cleanest hybrids, and 25% for any car with 100 g/km CO2. Bands climb in 1 percent increments from 14 percent to a maximum of 37 percent, with diesel vehicles subject to a 4% addition increase if they do not meet RDE2 testing.

The UK Government changed the CO2 measurements used to determine tax rates from the old NEDC data to the new WLTP data in April 2020. As a result, there was a transition period during which two sets of BIK rates were used: one for vehicles registered before April 6, 2020, and the other for those registered after that date. Please keep in mind that a vehicle's BIK rate is determined by its registration date.

How to minimise BIK/company car tax

If the amount of BIK payable is a concern, there are ways to minimise or avoid paying BIK:

  1. Consider using the car for business use only
  2. Choose a car with a smaller engine or an EV to reduce the BIK payable
  3. Consider taking a car allowance rather than a company car – you won’t have to pay BIK, and you can still expense fuel.

Discover more about business car leasing in our business car leasing hub here at Vehicle Contracts.