A company car is widely considered to be one of the biggest perks that a job can offer, but leading independent car specialists, OSV, have discovered that around half of all company car drivers don’t really understand what their vehicle means for their tax status.
- One in two (46 per cent) company car drivers do not understand the BiK changes
- Almost a third of drivers did not realise that there had been changes to the way company cars impact upon taxes
- 59 per cent of company car drivers think company car tax is based purely on the cost of the car
While 27 per cent of company car drivers did not realise that there had been changes made to the way in which company cars impact upon taxes (with the 6 April, 2017 implementation of the Benefit in Kind (BiK) system,) of those who did know that changes had been made, almost half (46 per cent) had no idea what those changes were, over four months after the changes came into effect.
BiK represents any benefits which employees or Directors receive from their employment but which are not included in their salary or wages, and the company car is potentially the greatest of these assets. Unfortunately, OSV’s research has revealed that 47 per cent of company drivers do not even know what BiK stands for, let alone how it impacts upon them, or how to calculate it.
Calculating BiK can, however, be a worthwhile exercise, allowing you to enjoy the perk of a company car without incurring unnecessary expenses. There is a formula which can help:
- Work out the sum of the vehicle’s list price, including delivery, VAT and any optional extras
- Multiply that figure by its BiK band percentage – this is impacted upon by the car’s CO2 emissions and fuel type (diesel cars incur a higher rate, which was a surprise to 37 per cent of interviewees, who thought that diesel would be the cheapest option. Electric and hydrogen cars have the lowest BiK rate at seven per cent)
- Then multiply by your income tax band of 20 per cent, 40 per cent or 45 per cent
Should this sum prove too ‘taxing’ there are calculators that will do this for you includingOSV’s Unique Company Car Tax Tool.
As a caveat to that, making financial contributions to your company car scheme will lower your BiK rate – something which came as a revelation to 54 per cent of interviewees – and part time use can also lower company car tax. As a general rule however, it can be assumed that high earners, driving expensive cars that have high CO2emissions, will pay more company tax. Despite this new information, 22 per cent of drivers said that they would not be changing their choice of company car because of the new BiK scheme.
OSV co-director, Andrew Kirkley, said: “There are currently one million company cars in Britain; that presents an awfully big opportunity for the Tax Man to fill his coffers when inappropriate choices are made.
“In opting for a vehicle with lower emissions – and there are still some really exciting models available, such as the BMW i3, Tesla Model S, and Toyota Prius – you’re not just doing a good thing for the planet, but you could also be boosting your bank balance.
“If your company is willing to give you a say in the choice of car you drive for business, it’s well worth shopping around and weighing up all of the options. A company car may be an opportunity to get behind the wheel of a vehicle you couldn’t normally afford, but there’s nothing to say that the vehicle must be a gas-guzzler.”