A company car can be a valuable perk and choosing one can be a lot of fun. Unfortunately the potential tax implications are not so much fun, and choosing the wrong car can prove to be an expensive mistake.

Understanding how BIK tax is calculated

Benefit-in-kind is a tax you pay on any perks you receive from your company, in addition to your salary as part of your remuneration package. How much company-car tax you’ll pay depends on a number of factors; the cost of the car (P11D value), your salary and the car’s CO2 emissions. While your salary is likely to be fixed when you choose your company car, you can choose a car with a lower P11D value and low CO2 emissions in order to reduce the amount you’ll pay in BIK tax.

Working it all out

To work our the BIK value of a company car, you multiple the car’s P11D price (list price including optional extras, VAT and delivery charges, less the first-year registration fee and annual road tax) by the percentage BIK band the car sits in. The BIK bank is determined by the CO2 emissions of the vehicle. The actual figure you’ll pay is this number multiplied by your income tax band of 20% or 40%.