Benefit in Kind Tax (explained)
Are you feeling bewildered about the ins and outs of Benefit in Kind (BiK)? Is it costing you money? Are the risks of non-compliance with HM Revenue and Customs (HMRC) keeping you awake at night?
Complexities around tax can be enough to confuse even the most sharp-witted employers and employees.
But the good news is, BiK does not need to be complicated…
We have put together some quick reference points to give a general guideline about taxable benefits on cars, vans and fuel.
‘Benefit in Kind’ tax for company cars, sometimes referred to as company car tax, is payable where cars are made available for employees’ private use – this includes commuting journeys to and from work. These cars are treated as an additional salary and the tax is payable by the employee.
For employees, Benefit in Kind on company cars is calculated by multiplying the P11D value of the vehicle by the benefit-in-kind tax rate – dictated by its CO2 emissions – and by your income tax rate. You just have to remember that BiK tax rates change annually – they can be found here gov.uk
For employers, Class 1A National Insurance Contributions must be paid, once a year, on the total value of the benefits. The rate for the tax year 2015 to 2016 is 13.8 per cent.
‘Benefit in Kind’ tax is also payable for an employee’s private use of a van – but in the case of vans private use excludes commuting. Employees may use a van to commute without having to report it or being liable for BiK tax.
For employees, Benefit in Kind on vans is calculated by multiplying your income tax rate by the flat rate taxable benefit of £3,150.
As with company cars, employers must pay Class 1A National Insurance Contributions on the benefits at the current tax rate of 13.8 per cent.
When employees are provided with fuel for private purposes, an additional fuel benefit tax charge arises – this is treated differently for company cars and vans.
For company car drivers, the charge is calculated by multiplying the fuel benefit charge (£22,100 for the 2015/16 tax year) by the car’s CO2-based benefit-in-kind tax rate. This figure is then multiplied by your income tax rate.
For van drivers, the charge is calculated by multiplying the fuel benefit charge (£594 for the 2015/16 tax year) by your income tax rate.
For employers, Class 1A National Insurance Contributions must be paid on the total value of the benefits at 13.8 per cent (2015/16).
How telematics can help
The Blackbox reporting suite is a simple way to keep your mileage registration accurate and up to date. It enables drivers to keep a detailed record of every journey allowing drivers to select whether the purpose of a journey was business, private or commuting. All trips and mileage can be validated at any time by the driver.
For a more detailed look at Benefit in Kind, our quick reference guide will offer you further advice and information.
*Disclaimer: This provides general information to be used for your reference only. Red Sky Telematics does not warrant or imply that the use of its products can in itself guarantee compliance with your tax or legal obligations. To ensure compliance with these obligations you should always seek professional advice from a legal counsel or a qualified tax compliance specialist.