free company car

What is Benefit in Kind?

Benefits in Kind are essentially perks which employees receive from their employment. These perks are not included within the employees salary or wages. 

A Benefit in Kind from an employer to an employee can include things such as private medical insurance or in this case company cars.

A car comes with many benefits including insurance and maintenance which is covered by the employer. As the car is provided by the employer, the driver will be subject to paying a Benefit in Kind tax.

This tax is currently set to 0% for electric company cars for this 2020 tax year.

Benefit in Kind and Company Cars

Tax is payable on a company car if it is made available for private use by an employee. This includes travel between home and work.

HMRC Tax changes

HMRC wants people to go green wherever possible. As such they are rewarding people who drive more environmentally friendly cars.

So cars with lower CO2 emissions are taxed at a significantly lower rate compared to those with higher emissions.

The Benefit in Kind tax on electric company cars has dropped to 0%. 

As a result, employers and employees will make substantial savings on Tax and National Insurance.

This is how you could potentially drive a free electric company car this 2020 tax year, all paid for by the HMRC.

The BiK tax will rise to only 1% in 2021 and up again to only 2% in 2022.

How to work out benefit in kind

In order to work out how much Benefit in Kind tax you will pay, you must first find the P11D value of the car. 

The P11D value is the list price of the car including any VAT delivery charges and factory options fitted to the car. 

Once you have found out the car’s P11D value, you will then need to find out the CO2 tax rate that the car falls into. 

Then you will need to know your income tax rate, whether this be 20%, 40% or 45%. 

P11D value x CO2 tax rate x income tax rate = BIK tax due

P11D values for BMW i3, Tesla Model 3, Tesla Model S and Audi e-tron:

BMW i3 120Ah P11D value: £35,885

Tesla Model 3 P11D value: £52,990

Hire a Tesla Model S

Tesla Model S P11D value: £73,730

 

Audi e-tron P11D value: £68,000

Worked Example of Tax Savings for a 20% Tax Payer

Electric vehicle Benefit in Kind BiK tax example

Please Note: Example Tax Code Used: 1250 / P11D Value: A3 = £37,975 i3 = £37,785.30 / Fuel Benefit Fixed Rate = £24,100.

Worked Example of Tax Savings for a 40% Tax Payer

benefit in kind tax example electric car

Please Note: Example Tax Code Used: 1250 / P11D Value: C63 = £75,333 Tesla = £77,645 / Fuel Benefit Fixed Rate = £24,100.

What is Salary Sacrifice?

If an employee chooses to make a salary sacrifice,  they will take a reduction in gross salary.

In return they can receive benefits including childcare vouchers, gym membership or in this case a fully electric company car. 

As the sacrifice is executed before tax and national insurance contributions are even applied, employees can effectively save hundreds!

The salary sacrifice car is used as a private car, but it is leased by the employer. 

Benefits of a Salary Sacrifice car

Benefits for the employer

  • Maintenance included – covered in the lease are costs for service and repairs, as well as tyres.
  • Flexible leasing – choose to lease from 3 months up to 3 years.
  • No risk – if the employee leaves, you can simply hand the car back.
  • Happy employees – your staff will be able to use their personal car both at work and for private use. This will make the employee happier and more loyal to the company.

Benefits for the employee

  • New car – you get a modern, hassle free, safe and fuel-efficient car.
  • Lower costs – the car is paid on gross salary, which makes it cheaper than buying any other way.
  • No deposit – you do not have to pay a deposit which means no borrowing or paying cash to get a new car. So long as the company’s credit checks are in order, the company will be invoiced per month and will have no upfront cost to pay.

Salary Sacrifice Example (20% Tax Payer)

This example is for a 20% taxpayer, receiving fuel for private mileage. / Tax Code: 1250 / Based on approximately 10,000 miles/A.

Salary Sacrifice Example (40% Tax Payer)

This example is for a 40% taxpayer, receiving fuel for private mileage. / Tax Code: 1250 / Based on approximately 10,000 miles/A.

Both tables savings can be shared between the employer and employee, the employee could even receive the full amount.

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