Lease car benefit in kind price comparison

When looking for a new company car, benefit in kind tax can often be an afterthought – but it shouldn’t be. Your choice of car makes a huge difference to your benefit in kind tax bill, potentially saving you thousands of pounds per year , especially if you go for an environmentally beneficial electric car.

Before you commit, make sure you fully understand the implications of benefit in kind on company cars before deciding on your model. A few things go into calculating it, and with Simply Leasing’s benefit in kind price comparison, you’ll see how different the final tax amount can be. First of all, let’s learn more about benefit in kind tax.

What is benefit in kind tax?

When an employer gives any employee benefits outside of their usual salary, the employee needs to pay a tax to HMRC, known as benefit in kind tax (BIK). Company car drivers have to pay BIK when they also use the car for personal trips outside of work.

BIK amounts change regularly, and you should make sure to check for any future amendments when looking into your company car lease options. We’ll use the current 2021/22 rates to calculate BIK.

How is benefit in kind tax calculated?

When calculating BIK on company cars, you need three pieces of information:

1. The value of the car. This is known as the P11D and is the basis of your BIK calculation. You’ll also need to include any extras or addons in this figure.
2. The CO2 emissions of the car. This is a number between zero and 170+ and indicates how many grams of CO2 the car emits per kilometre.
3. Your income tax band. Currently, in England, the basic band is 20 per cent for salaries up to £50,000 per year, or 40 per cent over that for salaries in the higher band.

Once you have this information, you’re ready to calculate your BIK. The CO2 amount has a  dramatic effect on BIK, so we’ll be looking at three different types of vehicles to demonstrate.

Benefit in kind tax on a petrol or diesel company car

Internal combustion engine (ICE) cars run on petrol or diesel. They have the highest emissions of any car type, so also typically have the highest benefit in kind tax amount. For our comparison, we’ll use the Volvo XC40 SUV 1.5 T3 R-Design petrol turbo.

With an emissions level of 165 grams per kilometre, the XC40 is in the 37 per cent BIK tax bracket in 2021. Combined with a P11D value of £34369.99, calculate the initial BIK amount as:

34,369.99 x 0.37 = £12,717.00 BIK.

This number is then adjusted for the income tax bracket of the employee.

For basic income tax earners: 12,717 x 0.2 = £2,542.80 BIK per year, or £211.90 per month.

For higher band income tax earners: 12,717 x 0.4 = £5,086.80 BIK per year, or £423.90 per month.

As you can see, the emissions level of the XC40 makes the BIK tax bill relatively hefty. The BIK bracket of 37 per cent is the highest payable on any current vehicle, and it’s possible to find ICE vehicles in lower bands. To see a significant reduction, take a look at a hybrid.

Benefit in kind tax on a hybrid car

For our hybrid example, we’ll stick with the Volvo XC40 and go for the 1.5 T4 Inscription Expression plugin hybrid petrol version. A P11D of £37,789.99 means a more expensive car than the full petrol version, however, its emissions level is only 47 grams per kilometre. With hybrids, you also need the electric battery range, in this case, 28 miles – this puts it in the 13 per cent BIK bracket:

37,789.99 x 0.13 = £4,913.00 BIK.

For basic income tax earners: 4,913 x 0.2 = £982.60 BIK per year, or £81.88 per month.

For higher band income tax earners: 4,913 x 0.4 = £1,965.20 per year, or £163.77 per month.

By going hybrid, you’ve saved almost 60 per cent of your BIK bill. For those who want to maximise their BIK tax savings, electric cars go one step further.

Benefit in kind tax on electric cars

If you’ve chosen an electric car on lease, you’ll pay negligible BIK tax as part of a government green incentive. If you were to choose a Kia e-Niro 3 with a P11D of £37,345 and zero emissions, the BIK bracket would be one per cent in 2021.

37,345 x 0.01 = £373.45 BIK.

For basic income tax earners: 373.45 x 0.2 = £74.69 BIK per year, or £6.22 per month.

For higher band income tax earners: 373.45 x 0.4 = £149.38 per year, or £12.44 per month.

The BIK amount for electric cars is set to rise to 2 per cent in 2022, but the savings are still huge. Compared with the petrol Volvo XC40, the e-Niro saves a basic rate taxpayer £2,500 per year in BIK. For higher band earners, that saving is a whopping £4,900 per year. It’s easy to see why so many people are choosing electric vehicles for their company car.

Made up your mind?

Your choice of company car makes a massive difference to your BIK tax bill. Get in touch with Simply Leasing today for expert advice on the best deal for your next lease car.

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