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What is Benefit in Kind (BIK), how it works and how to use to your advantage

9th April 2019

We aim to make Benefit in Kind (BIK) tax easier to understand and to use when you buy your next new or used car or van.

9th April 2019

Leasetree: Demystifying Benefit in Kind

Put simply: Benefit in Kind (BIK) is a tax on employees where the government reason that if you have personal access to a car or van then this count as a taxable form of income.

BIK Confusion and Solution

Unfortunately, the rules around BIK often seem rather put together. These rules are not that easy to understand on the surface so LeaseTree demystify Benefit in Kind for both car and van/commercial vehicle users. The confusion in part comes because what was a tax designed to stop employees using company cars for personal purposes without paying tax has now evolved so that BIK is also designed to encourage employees to buy or lease cars that are better for the environment and expel less CO2 emissions.  It is important to understand the rules however as the tax man is getting ever more vigilant in his quest to root out those who claim that the car or van is only for business use but also use the vehicle on a personal basis.

Does BIK apply to you?

If you are in fact not using the vehicle – whether a car or van –for personal reasons and only in the course of business then there is no tax to pay. The test is often applied as to where the vehicle is kept overnight. If you use a car (but not necessarily a commercial vehicle or van) to travel to and from work then, unfortunately, this qualifies as personal use.

Vans and Commercial vehicles are different.

The rules around vans and commercial vehicles are different, however. Commuting to and from work in a company van does not fall under personal use.

As a van driver, you are allowed to use the van for the odd piece of personal use such as taking rubbish to the dump, but only “occasionally”. You are also allowed to run personal errands and can even drop off your kids at school or give your wife a lift to work providing that the drop off does not involve a size-able detour for you on your way to work.

You can see why people get confused as to the rules, especially where it concerns BIK and vans but you  & your accountant should look to use common sense and review these government rules here to avoid any run-in 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.

So how do you calculate Benefit in Kind (BIK) on cars and non commercial vehicles? 

When you calculate BIK, you need to take 4 variables into account where the BIK banding comes from the table in the link and you also need 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 also need to know if the vehicle has a diesel engine as this will attract further tax and it adds a further 4{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} on top from April 2018 onwards if your car runs on diesel and does not have an engine that is Real Driving Step 2 Compliant.

The P11D value is often misunderstood as it’s a value that the manufacturer puts on the car, often significantly higher than even what a new car sells for where no discount is factored and any extras like sport trims (for example, a panoramic roof) or any non standard extras. The P11D represents the list price of the vehicle with VAT and extras but without first year registration fee & vehicle tax.

Your personal income tax banding has a huge effect on what tax you pay as its either 20{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} or 40{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} ( even 45{ce1f5a97386adb343f3d9b12b92f2c65f76aa8e98ead3145386a848fb9911aa8} for some), effectively doubling what you will pay.

Parkers have a handy company car tax calculator here but you can also work it out for yourself using the formula below provided you have all of the inputs including the P11D value.

a =The cost of the car or P11D value

b=The emissions of your new car which will define the tax band it’s in

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 a diesel car on the expensive side is 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 would pay so it pays to look closely at the variables when choosing a company car.

When it comes to vans, the calculation is different where a flat figure of £3,490 is currently used 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 Toyota Hilux or Nissan Navara or Isuzu D Max for business and personal use for very little in the way of Benefit in Kind tax.

To get a lease deal on a new or used car or van simply visit the Special Offers section, click on a vehicle you like and then fill out the short application form – we will be back to you directly.

If you don’t see the right car or van for you then fill out our Get a Quote form and please be sure to advise what make and model you want in the comments box. We have thousands of new car lease deals and hundreds of used car lease deals so we are bound to be able to secure a great deal for you. You may be after a commercial vehicle and we have small, medium and large vans deals available here.

If you have already found a car or van elsewhere from a FCA registered dealer and only want the Finance then we can help as well – simply click on the “Just Finance” link here and fill out the short application form.

The process behind BIK payments may be a little blurred and convoluted but if you use Leasetree to source your next vehicle – be it on a lease or finance deal then we and our partners are ready to help talk you through your options.