Employers often provide company cars and sometimes fuel for employees' private use. If a company car is made available to an employee, regardless of whether the car is owned or leased by the employer, the employee will incur a taxable benefit for the private use of the vehicle. The car benefit is the cash equivalent of this private use.
This article outlines the key elements used to determine the taxable benefit-in-kind for employees. Please note the rates and thresholds applicable to calculating Company Car benefit change regularly.
Key Factors for Determining Company Car Benefit
1. List Price of the Car
The list price is the value of the car when it was first registered.
It’s not necessarily the amount paid by the employer, but rather the official list price at the time of registration.
2. Carbon Dioxide (CO2) Emissions
CO2 emissions play a crucial role in determining the BIK charge.
The lower the emissions, the lower the benefit. This is part of the government's initiative to promote environmental responsibility.
For plug-in hybrid vehicles, the CO2 rate is determined based on the maximum distance the car can travel in electric mode without recharging.
CO2 Emission and Relevant Percentage for BIK:
CO2 emissions between 51-54g/km: 15%
CO2 emissions between 55-59g/km: 16%
CO2 emissions between 60-64g/km: 17%
CO2 emissions between 65-69g/km: 18%
CO2 emissions between 70-74g/km: 19%
For cars emitting 75g/km or more, the relevant percentage starts at 20%, increasing by 1% for every additional 5g/km over 75.
For low-emission vehicles (CO2 emissions of 1-50g/km), the relevant percentage is determined by the electric mileage range:
Electric mileage range of 130 miles or more: 3%
Electric mileage range of 70-129 miles: 6%
Electric mileage range of 40-69 miles: 9%
Electric mileage range of 30-39 miles: 13%
Electric mileage range of less than 30 miles: 15%
3. Cost of Accessories
Any accessories added to the car are included in the list price for BIK calculations.
Accessories added for security purposes, such as bulletproof glass or armour plating, due to the nature of employment, are excluded from the calculation.
4. Employee Contributions
If the employee contributes towards the cost of the car, this amount is subtracted from the list price.
The maximum allowable contribution is capped at £5,000.
Example
Let’s consider an example where an employee is given a company car:
List Price: £20,000
Accessories Added: £2,000
Employee Contribution: £5,000
CO2 Emissions: 130g/km
Calculating the Benefit:
Revised List Price: £20,000 + £2,000 - £5,000 = £17,000
CO2 Percentage: [((130 - 75) / 5) + 20] = 31%
BIK Calculation: £17,000 x 31% = £5,270
In this case, the employee would declare a benefit of £5,270, and the company would use this figure for their P11D computation and pay Class 1A NIC.
Fuel Provided to the Employee
If the employer provides private fuel for the employee, an additional benefit arises. The CO2 percentage is multiplied by £27,800 (the fuel benefit charge). For our example, if fuel is provided:
Fuel Benefit: £27,800 x 31% = £8,618
Other Important Points
A 4% supplement is added to the relevant CO2 percentage for diesel cars. The maximum relevant percentage is capped at 37%.
If the car is not available for the full year, the BIK is pro-rated on a monthly basis. The benefit is only applied for the months when the car was available to the employee.
Non-Availability Period: to qualify for apportionment, the employee must not have access to the car for a continuous period of at least 30 days.
If the employee is given two cars, each car will be taxed separately. The benefit is calculated for the employee, not their family members, if the car is used by them.
If a classic car (more than 15 years old and worth more than £15,000) is provided, the market value is used in place of the list price for BIK calculation, provided the market value is greater.
Pool cars—vehicles used solely for business and kept overnight at business premises—do not attract a taxable benefit.
Speak to an Expert
If you’re considering providing a company car or pool cars to your employees and need clarification on the tax implications, feel free to contact us. We would be happy to assist you in navigating these rules.
Authored by: London Tax Team
Comments