What is Benefit in Kind Tax?
- Benefit-in-Kind (BIK) tax is a tax on benefits received from an employer, in addition to salary.
- BIK tax is paid by employees on personal use of a company car.
- It’s a taxable benefit provided by an employer, and employees pay BIK tax out of their monthly wage.
- BIK tax is treated separately from salary and is paid before it reaches the employee’s bank account.
For the uninitiated, Benefit in Kind is a tax that is recouped through an employee's payslip if they use a company car for private use.
Note: commuting to a place of work is considered "private use".
The amount of tax payable is calculated based on a number of things, namely the vehicle's P11D or "list price", and its Carbon Dioxide emissions. The CO2 emissions form part of a sliding scale that assigns higher rates of tax to vehicles with higher emissions.
For Double Cab Pickups, the rules were different. As a van, the vehicle was eligible for a flat rate of £3,960. The amount of BiK was calculated from the employee's tax code, so for an employee paying the basic rate of tax (20%), they would be liable to have £792 taken from their payslip.
Under the new changes, Double cab pick ups like a Toyota Hilux would be considered cars as opposed to a company car, and therefore requires a different BiK calculation, effectively punishing those who need them for work with hefty taxes. We've broken this down for a basic rate tax payer below.
- Vehicle: Toyota Hilux 2.8 D-4D Invincible
- List price: £41,960
- CO2 emissions: 223 g/km^3 (37% tax rate)
- Eligible BiK of £15,525.
- Payable Tax: £3,105
This is more than a fourfold increase. Not only that, but employers are also required to make National Insurance contributions for Benefit in Kind.
Compare this with a zero emission EV, which can't easily be taken off the beaten track (2% tax rate). For the sake of comparison if we say it's worth the same, the car would be eligible for only £8,392 BiK , with just £1,678 payable tax.
Points to Note:
- There is a transitional period which will apply to employers who have purchased, leased or ordered a DCPU before 6 April 2025. They will be able to use the previous tax treatment, until the earlier of disposal, lease expiry, or 5th April 2029.
- Benefits in Kind only apply to individuals who use the vehicle for private use. If the vehicle is only used for business purposes, there is no BiK. Someone who is issued with a DCPU for work purposes will not automatically incur a BiK if they can clearly demonstrate they do not use the vehicle for private journeys – this would probably necessitate them (or their family) owning their own personal vehicle.
- Note – travel to and from a regular place of work is regarded as private use.
- The changes to capital allowances will certainly impact businesses but more in terms of the timing of tax paid. Regardless, there is still a cost to paying tax sooner, rather than later!
- To date, there are no changes to the VAT treatment of DCPU.
Double Cab Pickups are still an ideal choice for private use, browse our stock of new and used commercial vehicles at OVMS.