Friends with Benefits .. BIK explained


Friends with benefits?

Benefit-in-kind, or BIK, tax affects employees who receive ‘perks’ that are not included in their salary. While these ‘fringe benefits’ can be tax-exempt (like some childcare arrangements, say, or a free canteen) if you have a company car the likelihood is you’ll have to stump up.

Because there’s a monetary value associated with your ability to use the car and this isn’t covered by your standard National Insurance contributions, so HMRC’s logic goes, there’s tax to pay.

The amount depends on how much the car would cost to buy, the type of fuel it uses and which income tax bracket you’re in.

Does BIK definitely affect me?

If you or your family put a company car to any kind of private use, and this includes commuting to and from work, then the answer’s yes.

On the plus side, vehicles with lower carbon dioxide emissions and that run on alternative fuels are subject to a lower tax band (this is a good time to, well, plug our guide to ultra-low emission vehicles), as are cheaper cars.

And you’ll also pay less if you only have the car part-time or you pay something towards its cost.

How do I find out how much I have to pay?

There are two simple ways of working this out:

Method 1… Get Carol Vorderman on the phone and ask her to multiply your company car’s P11D value by its CO2-influenced tax rate and then multiply this figure by your income tax band.

Method 2… Use the government’s online company car tax calculator.

You can find more information about BIK and choosing a tax efficient company car by calling the WHF team on 01925 713212.

P.S.: A few words on mileage allowances

If you get a mileage allowance from your employer for using your own vehicle for work journeys, these payments are not taxable, up to an ‘approved amount’.

Back over to Carol… This rate is calculated by multiplying your business travel miles for the year by the rate per mile for your vehicle, which for cars and vans is 45p for the first 10,000 miles and 25p thereafter. So if you travel 11,000 miles, the non-taxable amount would be £4,750 (10,000 x 45p plus 1,000 x 25p). There’s more on this at GOV.UK 

Tax-free mileage allowances apply only to journeys made for work purposes, such as delivering goods or visiting clients, and don’t include commuting to and from your normal workplace.


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