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Benefit in Kind: How to use BIK to your advantage

2nd February 2019

What is Benefit in Kind (BIK), how does it work and how do I use it to my advantage?

2nd February 2019

A question we are often asked is..What exactly is Benefit in Kind and how does it work?

Benefit in Kind (B.I.K.) is a tax on employees where the government tax you if you have personal access or use of a company where this counts as a taxable form of income.

BIK is not straight forward

Unfortunately, the rules around BIK often seem hard to get your head around. These rules are not that easy to understand at first glance so Leasetree have put together a straight forward explanation of  Benefit in Kind for both car and van/commercial vehicle users.

The tax authorities are getting hotter on checking use of company vehicles so it is important to understand the rules and where you do or do not have to pay BIK.

Do you need to pay BIK?

If you are not using the vehicle , a van or a car, for personal reasons and only in the course of normal business then, there is no tax to pay.

The critical point is often, where the vehicle is kept overnight – particularly if its a car? If you use a car (but not necessarily a commercial vehicle or van) to travel to and from work then this counts as personal use.

Vans and Commercial vehicles BIK rules are different to cars.

The rules around vans and commercial vehicles are not the same. Commuting to and from work in a company van does not fall under personal use so you may not need to pay BIK.

As a van driver, you are allowed to use the van for the odd piece of personal use such as taking a slight detour on your way to work to drop off the kids at school or for odd personal errands but the key element here is distance and regularity. Take the car or van on holiday however and you definitely fall foul of the rules.

If you own a small business, its important that you consult your accountant and review these government rules to avoid any issue with the tax man. As an example,  if you use your van to take the family to Cornwall on holiday then you run the risk of a hefty fine.

How to calculate Benefit in Kind (BIK) on cars and non commercial vehicles? 

When you calculate BIK, you need to take 4 points into account:

  • The BIK banding. This link has the table here
  • Your own tax banding ( normally 20{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} or 40{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} depending on your personal income)
  • The P11D value of the car (which is a manufacturer declared value of the car when made). You will need to know if the vehicle has a diesel engine and what type as this will attract further 4{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} if your vehicle has a non-RDE2 diesel engine which are engines not compliant with the Real Driving Emissions Step 2 test – see we told you it wasn’t straight forward!.

The P11D value is often misunderstood as well as it’s a value that the manufacturer puts on the car not the seller and is often much higher than what a new car sells for where no discount is factored in and any extras eg. a panoramic roof plus any non standard extras. The P11D represents the list price of the vehicle with VAT and extras but does not include the first year registration fee & vehicle tax.

Your personal income tax banding has a massive effect on what tax you pay as its either 20{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} or 40{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} ( even 45{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} for some) which, depending on how much you earn could more than double the BIK tax..

Parkers have a useful company car tax calculator here but you can work it out for yourself using the formula below provided you have all of the inputs.

a =The cost of the car or P11D value

b=The emissions of your new car which define the tax band – if its a diesel, check its RDE2 compliant.

c= your tax banding (20{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} or 40{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8})

The formula is:

a x b (plus 4{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} if diesel) x c

The way it works is that an expensive diesel car driven by a 40{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} taxpayer can attract far more than double the tax that a 20{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} taxpayer driving a less expensive petrol car so the message is, do your homework and check the BIK tax!

When it comes to vans, the calculation is different. A flat figure of £3,490 is currently used ( check the government site here )and then, assuming you use the van for personal use, you would need to pay 20{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} or 40{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} depending on what income tax you pay.

What does this translate into? If you are a  20{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} income taxpayer, for example, you can use this to drive the likes of a new Mitsubishi L200 for business and personal use with very little Benefit in Kind tax.

BIK calcualtions may not be straight forward and Leasetree are here to help but your accountant is often the best port of call where BIK rules are liable to change, as they have in April 2020.

If you would like to see our special offers on vans, please click here or for business deals and special offers click here. If you are looking for a new car in a personal capacity you can find suitable deals here and if you prefer a used car we have special offers on this page.

Hybrid and All Electric cars can have a huge influence on the amount of BIK you pay so if you want to GO GREEN and enjoy the benefits to both the environment and your back pocket, click here to see all the hybrid and All Electric special offers.

Remember that LeaseTree are here to help so if you can’t see the car or van you are after then simply fill out the Get a Quote form and be sure to include the make and model you are after in the comments box and we will source a great deal for you.