Benefit in Kind Explained: Company Car Tax Guide

What is Benefit in Kind?

Benefit in Kind (BIK) is a tax that employees must pay when they receive a benefit from their employer that is not included in their  salary — such as a company car available for private use. This is often is referred to as Company Car Tax.

The BIK cost for each vehicle is determined by a range of factors;

• The P11D value of the vehicle (its list price including VAT and optional extras)
• The vehicle’s CO₂ emissions
• The employee’s income tax bracket (e.g. 20%, 40%)

The higher the vehicle’s emissions, the higher the BIK percentage will be, which you can find in the table below. This has been introduced to encourage the use of lower-emission and electric vehicles.

How BIK is Calculated

Car CO2 emissions are a measure of how much carbon dioxide your vehicle emits, given in grams per kilometre (g/km). This number helps gauge how environmentally friendly your car is; the lower the emissions, the cleaner the vehicle.

All these numbers allow you to work out how much it could cost you to lease a car.

Vehicle value (P11D) x BIK tax (%) x tax bracket (%) ÷ 12 = Monthly cost of BIK (£)

Vehicle Value (P11D): The list price of the car.

BIK Percentage: Percentage based on CO2 emissions.

Tax Bracket: Your income tax rate (e.g. 20%, 40%).

Benefit in Kind (BIK) CO₂ Bands by Tax Year g/km (Registered from April 2020)

The Benefit In Kind table below shows the company car tax % based on CO2 emissions.

The BIK bands are set by HMRC and are based on a vehicle's CO2 emissions. A rate applies to electric or alternative fuel cars that emit zero CO2 emissions - check here.

If you drive a plug-in hybrid car that emits less than 50g/km, the rate is based on the battery zero-emissions range. This is the distance (measured in miles) the car/van can go on electric power before its batteries need recharging.

Who Has to Pay BiK?

You will have to pay Benefit-in-Kind (BiK) tax as an employee if your employer provides you with a company car that is not included in your salary. This also applies to salary sacrifice arrangements, where a company car is made available for private use. Many people refer to this as Company Car Tax.

It’s worth noting that BiK tax is calculated monthly, so it’s not a one-off payment. 

How is BIK shown on payslip?

How BiK appears on your payslip depends on whether your employer reports it through payrolling (processed via payroll) or using an annual P11D form. From April 2027, payrolling benefits will become mandatory.

1. Payrolling Benefits

With payrolling, your employer adds the value of the car to your salary each month, and the extra tax is deducted automatically.

• The tax is collected as you earn, so you won’t get a bill at the end of the year.
• From  April 2027, all employers must use payrolling.
• Check your payslip to make sure the benefit is correct. If something looks wrong, speak to your employer.

2. Annual P11D Reporting

Some employers currently report company car benefits once a year using a P11D form. HMRC then calculates the tax you owe, usually by adjusting your tax code so it’s collected from your pay.

• If your tax code can’t be adjusted, HMRC may issue a P800 form or a simple assessment to collect the tax.
• This method will no longer be used from April 2027.