Discover how benefit-in-kind tax is calculated and how it affects a salary sacrifice car lease here in the UK.
Benefit in kind refers to non-cash benefits that employees receive from their employer in addition to their salary or wages. These benefits are often provided to employees as a way to attract and retain talent, boost employee morale and productivity, and provide additional incentives for employees to stay with the company. Benefit in Kind is sometimes referred to as company car tax. When discussing a salary sacrifice car lease, the BIK refers to the tax payable for the benefit which in this case is a leased car.
Currently, the BIK rate for electric car leases is 2% and has been fixed by the UK government until April 2025. After this BIK rates will be increased by 1% each year until 2028.
This is great news for anyone considering a salary sacrifice as it gives assurance that all-electric vehicles will maintain their cost-effectiveness for the foreseeable future. The BIK percentage increase as the CO2 produced by the car increases and the electric range decreases. The Tax is then dependent on your tax band and the total value or P11D of the vehicle to be leased.
Here at DreamLease we take care of all calculations and create personalised quotations for the vehicle you would like to Salary Sacrifice. However, below you can see the Benefit In Kind Calculation which uses the value of the vehicle the BIK tax band that the car falls into and the tax band that an employee's salary attracts.
P11D Value x 2% BIK x Income Tax Band = BIK Tax/month
Simply put, the higher the electric range the lower the BIK Tax will be and the higher the vehicle value the higher the BIK Tax will be.
For Example please see the estimated BIK Tax payable per month based on a 40% taxpayer.
|Tesla Model 3 EV = £34.91||VW Golf Plug-In Hybrid = £81||Audi A3 TDI Diesel = £322|
BIK Rates are fixed until 2025 then will increase by 1% each year until 2028.
|CO2 Emissions||Electric Range||BIK Percentage|
|1 to 50||130 +||2%|
|1 to 50||70 to 129||5%|
|1 to 50||40 to 69||8%|
|1 to 50||30 to 39||12%|
|1 to 50||> 30||14%|
|51 to 54||Non-Electric||15%|