Vehicle Benefits In Kind Breakdown

If your company provides vehicles or fuel to its employees or directors, these could be classed as Benefits In Kind (BIKs).

BIKs are defined as an item of monetary value provided by a business that is not “wholly, exclusively, and necessary” to perform their duties. This essentially means that the item is also used outside of work. Examples include private healthcare and company cars.

Using this definition, if you have received a vehicle through a company and use it for personal mileage it will be a BIK. If the fuel costs are covered by the employer this is also a BIK.

Calculating Employee Benefits In Kind for Vehicles

When it comes to vehicles, the way the BIK tax owed by employees is calculated depends on the type of vehicle. Recent legislation changes to how vehicles are classified should be considered when assessing how you account for new vehicles.

Vans

Benefits for vans are calculated as flat rates which are multiplied by the individual’s tax band. For 2023/24, the annual Van Benefit charge is £3,960, whilst the Fuel Benefit Charge is £757.

A basic rate (20%) taxpayer would owe:

Van Benefit Charge = 3960*20% = £792

Van Fuel Benefit Charge = 757*20% = £151.40

Total Tax Owed = £943.40

Cars

Calculating the BIK for cars is more complicated as you must use a BIK percentage. This percentage is based on the vehicle’s CO2 emissions (or electric range for hybrid vehicles). The percentage may increase by 4% for diesel cars if they do not meet RDE2 standards. The BIK percentages have been frozen until the 2024/25 tax year.

To calculate the BIK tax on a car, you multiply the list price or P11D value of the car by the BIK percentage, then multiply again by your tax band. The Fuel Benefit for cars is calculated by multiplying the Car Fuel Benefit Multiplier by the BIK percentage, then multiplying again by your tax band. The multiplier for 2023/24 is £27,800. This is set by HMRC for each tax year.

Example

You are a basic rate taxpayer, who had received a non-RDE2 compliant diesel car from your company with a list price of £17,000 and CO2 emissions of 117 g/km. The tax you would pay is as follows:

BIK % = 28+4 = 32%

Annual Benefit In Kind (BIK) Tax = 17000*32%*20% = £1,088

Car Fuel Benefit Charge = £27,800*32%*20% = £1,779.20

Total Tax Owed = £2867.20

Paying for Benefits In Kind – Employers

BIKs are filed by employers using P11D forms. This will account for the benefit by increasing the individual’s salary. Employers will pay a National Insurance Contribution of 13.8% on the value of the BIK. The total BIKs per tax year must be reported by employers using a P11D(b) form, which summarises the benefits provided to all employees during the period. This must be submitted by 6th July following the period. For example, the P11D(b) form for the 2023/24 tax year must be submitted by 6th July 2024.

Paying for Benefits In Kind – Employees

Employees will likely pay for BIKs through their tax code. HMRC will amend the employee’s tax code to allow the tax owed to be deducted from their wages. It can, however, take time for the P11D submission to be processed and therefore you may receive a notice stating you have underpaid your tax for the year. HMRC will collect the due tax via an updated tax code in a future tax year, or by issuing a simple assessment which allows the tax to be paid in one lump sum.

 

If you have any further questions about how Benefits In Kind apply to your business, or you are unsure of how they affect your tax, contact us for guidance.

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Double Cab Pickups – Benefit In Kind Changes

Update – Government U-Turn

On 19th February 2024, 1 week after the classification criteria was updated, HMRC announced a full U-turn on the treatment of double cab pickups. It has been decided that they will now continue to use the payload system to classify vehicles, as explained in our “How Were Double Cab Pickups Treated Previously?” section. This has occurred due to push back from the motor industry over the significant increase in tax the change would have caused for most double cab pickup owners.

 

Changes to the tax treatment of double cab pickups have recently been announced by the government. This will change how benefit-in-kind tax is calculated for these vehicles if owned by your company. These changes will be introduced to remove a loophole which allowed them to be accounted for as vans rather than company cars. The tax paid on vans is usually lower than the tax paid on cars.

How Will Double Cab Pickups be Accounted for?

For vehicles ordered on or after 1st July 2024, new criteria will dictate that almost all double cab pickups will be classed as cars. This is due to the new legislation used to determine how a vehicle should be classified.

 If a vehicle’s primary suitability is construction, it will be classed as a van. This means that the vehicle must only be used for transporting goods. As double cab pickups can transport both goods and passengers, they cannot be classed as vans and must be treated as cars.

Vehicles that are already on fleet or have been ordered prior to 1st July will be treated as they were until 5th April 2028.

How Were Double Cab Pickups Treated Previously?

The old criteria that were used to decide whether a vehicle was a car or van was dependent on payload. A vehicles payload is usually given in the manufacturer’s manual and is equal to the gross weight minus the unoccupied kerb weight.

Vehicles with a payload under 1 tonne would be classed as cars, whilst those which are 1 tonne or over would be classed as vans.

Double cab pickups are much heavier than standard cars; they would almost always meet the old van criteria.

Will All Double Cab Pickups be Classed as Cars?

Not necessarily. Within the legislation, the government have included exceptions which could allow double cab pickups to be classed as vans. This is dependent on whether modifications have been made to the vehicle.

The modifications must be “sufficiently permanent & substantial in scale”. Examples provided include replacement of the rear side windows (either with metal panels or fibreglass) or welding a new load base.

Defining whether a modification can fit the criteria can be difficult. For example, removal of the rear seats of a double cab pickup would only be classed as substantial if all the related fittings are also removed. The easiest way to check that the modification is substantial is if it could be easily reversed. If so, the changes cannot be used to justify the van classification.

How does the Benefit in Kind Differ?

A benefit in kind (BIK) is defined as goods and services received by employees or directors from a company which are not included in their salary, for example a company vehicle. The method of taxing these BIKs is dependent on the type of vehicle they are classed as.

Vans use a flat rate to calculate the tax owed. On the other hand, the tax owed on cars is dependent on the CO2 emissions and list price of the vehicle. Please see our Vehicle Benefit In Kind Breakdown for more information on how it is calculated.

Example

The tax owed by a basic rate (20%) taxpayer on a petrol-powered double cab pickup with a list price of £20,000 and CO2 emissions of 170 g/km would be calculated as follows if it was classed as a car:

BIK% = 37%

BIK Tax = 20000*37%*20% = £1,480

Fuel Benefit Tax = 27800*37%*20% = £2057.20

Total tax owed = £3,537.20.

The calculation for the same vehicle if classed as a van is as follows:

BIK Tax = 3960*20% = £792

Fuel Benefit Tax = £757*20% = £151.40

Total tax owed = £943.40

You would have to pay £2,593.80 more if the vehicle was classed as a car. As double cab pickups tend to have both high list prices and high emissions, the tax owed will almost always be higher when classed as a car.

 

If you are unsure about how these changes could affect you, or you have any other queries about tax, please contact us

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