11. COMPANY CAR TAX (BIK): Please explain company car benefit in kind (BIK) tax?

This is the tax drivers of company cars pay for the benefit of their private use of the car. The system for calculating this tax changed from 6 April 2002 and there is no longer be any discount for high business mileage. Instead, drivers are taxed on 15 per cent of the car's 'list price', with the tax base increasing by 1 per cent for each 5g/km CO2 the car emits over and above 165g/km. For tax year 2003–2004, the base CO2 is 155g/km, and for tax year 2004–2005 the base CO2 is 145g/km. So, effectively, the tax base for a £15,000 car emitting 185g/km CO2 rose from 19 per cent (or £2,850) in 2002–2003 to 23 per cent (or £3,450) in 2004–2005. Because they emit less CO2, diesels are hit with a 3 per cent surcharge (though diesel cars sold before 31-12-2005 which meets Euro-4 standards are exempt from the surcharge), and no company car driver is taxed on a base of more than 35 per cent of the car's list price. List prices and CO2 tables and can be found in What Car? and Diesel Car magazines, but drivers will need to subtract registration tax and VED to arrive at the taxable 'list price', as listed in Glass's Guide. From April 2002, cars first registered before 1/1/1998 for which no C02 figure is available are charged on the basis of 15% of the car's new price up to 1,400cc; 22% up to 2,000cc and 32% for bigger engines and rotaries. For cars first registered after 1/1/1998 these rates rise slightly to 25% for cars up to 2,000cc and 35% for bigger engines and rotaries.

Classic cars are taxed on the basis of the above percentages of their original list price, or if they are 15 years or older and their current market value is £15,000 or more, on the above percentages of their current market value.

For example: 1989 VW Golf GTi 16v, original price £13,885, taxed on basis of 22% of £13,885, i.e. £3,055. Tax at 40% = £1,222 a year.

But: 1971 Alfa Romeo 1,750 GT, original price £2,450, taxed on basis of 22% of £2,450, i.e. £539. Tax at 40% = £216 a year.

Vans and pick ups used as company vehicles were taxed on the basis of a straight £500, but this changed from April 2007 from when vans and pick ups used as company cars have been taxed on the basis of £3,000.

From April 2002, tax-free allowances for business use of a car owned by an employee have been a universal 40p a mile up to 10,000 miles and 25p a mile thereafter. This encourages a shift to economical low CO2 privately powned cars and discourages business use of thirsty high CO2 cars.

BIK CO2 = % List Price Basis for BIK Tables

Diesel cars are subject to a ridiculous BIK surcharge of 3% of the list price of the vehicle, but EU4 diesels first registered before 1-1-2006 escape this.

2003/04 BIK% Car List Price (+3% for diesels)

n/a 10%
165 15%
170 16%
175 17%
180 18%
185 19%
190 20%
195 21%
200 22%
205 23%
210 24%
215 25%
220 26%
225 27%
230 28%
235 29%
240 30%
245 31%
250 32%
255 33%
260 34%
265 35%

2003/04 BIK% Car List Price (+3% for diesels)

n/a 10%
155 15%
160 16%
165 17%
170 18%
175 19%
180 20%
185 21%
190 22%
195 23%
200 24%
205 25%
210 26%
215 27%
220 28%
225 29%
230 30%
235 31%
240 32%
245 33%
250 34%
255 35%

2004/05 BIK% Car List Price (+3% for diesels)

n/a 10%
145 15%
150 16%
155 17%
160 18%
165 19%
170 20%
175 21%
180 22%
185 23%
190 24%
195 25%
200 26%
205 27%
210 28%
215 29%
220 30%
225 31%
230 32%
235 33%
240 34%
245 35%

2005/06, 2006/07 and 2007/08 = BIK% Car List Price (+3% for diesels)

n/a 10%
140 15%
145 16%
150 17%
155 18%
160 19%
165 20%
170 21%
175 22%
180 23%
185 24%
190 25%
195 26%
200 27%
205 28%
210 29%
215 30%
220 31%
225 32%
230 33%
235 34%
240 35%

2008/09 BIK% Car List Price (+3% for diesels)

n/a 10%
120 13% (no 3% diesel surcharge)
135 15%
140 16%
145 17%
150 18%
155 19%
160 20%
165 21%
170 22%
175 23%
180 24%
185 25%
190 26%
195 27%
200 28%
205 29%
210 30%
215 31%
220 32%
225 33%
230 34%
235 35%

From 1-4-2008 to 31-3-2013 a company can write down 100% of the cost of a car emitting 110g/km or less in the first year.

From 1-4-2009 a company can only write down 10% of the cost of a car emitting more than 160g/km every year.

Between 110g/km and 160g/km a company can continue to write down 20% a year.

Further information at www.vca.gov.uk; www.ukcashforcar.com; www.businesscarsolutions.co.uk; www.lvl.co.uk; and www.honda.co.uk which runs an excellent and very 'friendly' BIK tax calculator (click in the 'Cars' icon, wait for the page to load, then click on 'cash for cars' at the bottom of the page).

Fuel mileage rates: www.hmrc.gov.uk/cars/advisory_fuel_current.htm


2009 Budget

Company car tax thresholds will tighten by a further 5 g/km with effect from April 6, 2011. That will see the 15% company car tax band lowered from 130 g/km to 125 g/km.

As a result, fleet decision-makers and company car drivers should brace themselves for two successive increases in benefit-in-kind tax thresholds.

While current financial year (2009/10) thresholds remain unchanged from 2008/9 levels, the Chancellor previously announced that there would be a 5 g/km tightening in levels in 2010/11. That will see the basic threshold for the 15% company car tax band drop to 130 g/km from the current 135 g/km (see chart below).

The Chancellor also announced a number of other changes that will come into effect from 2011/12 and in 2012.

The long-standing £80,000 price cap on company car list prices for the purpose of company car tax is to be abolished from 2011/12.

In addition, from 2011/12 the Chancellor is axing the company car tax discounts that currently apply to alternatively-fuelled vehicles (electric-petrol hybrids, ‘Flex-Fuel Vehicles’, bi-fuels, road fuel gas and bioethanol). The only ‘discount’ that will remain from 2011-12 is that for electric cars, which will qualify for 9% benefit-in-kind tax.

And, from 2012/13 the Chancellor has pledged that there will be a shake-up in company car tax.

Since April 2008, there has been a 10% band for company cars emitting 120 g/km of CO2 or less. However, the Government says that with the increasing number of low emission models reaching showrooms there will be no need to provide such an incentive.

Instead, the existing company car tax benefit-in-kind tax system will be extended to start at 10% and increase by one percentage point with every 5 g/km rise in CO2 emissions. This means that the 10% benefit-in-kind tax rate is likely to start at 100 g/km based on 2011/12 thresholds.

Simultaneously, the Government is considering the case for abolishing the current 3% company car tax diesel supplement on cars that meet Euro6 emission standards. Euro6 standards come into effect on January 1, 2015, but the incentive is likely to encourage carmakers to speed-up their marketplace arrival.

G/km of CO2 % of list price

2009/10 2010/11 2011/12
120 120 120 10
135 130 125 15
140 135 130 16
145 140 135 17
150 145 140 18
155 150 145 19
160 155 150 20
165 160 155 21
170 165 160 22
175 170 165 23
180 175 170 24
185 180 175 25
190 185 180 26
195 190 185 27
200 195 190 28
205 200 195 29
210 205 200 30
215 210 205 31
220 215 210 32
225 220 215 33
230 225 220 34
235 230 225 35

* Current discounts for alternatively-fuelled vehicles are:
1. Cost of conversion disregarded for bi-fuel gas and petrol cars after type approval, no additional percentage discount.
2. 2% discount for ‘Flex-Fuel Vehicles’, bi-fuel gas and petrol cars manufactured or converted before type approval
3. 3% discount for hybrid electric and petrol cars
4. 6% discount for electric-only cars.