Let’s Get Started
Understanding your tax on workplace perks doesn't need to be complicated. Whether you’re driving a company car, receiving private medical insurance, or enjoying other employee benefits, our guide (and the Pie tax app) makes calculating your Benefit in Kind (BiK) tax simple and stress-free. From company car tax rates to fuel benefits and everything in between, we’ll break it down clearly so you know exactly what to expect, and how to stay on top of it.
What exactly is a benefit in kind calculator?
A benefit in kind calculator is a tool that helps you work out how much tax you need to pay on non-cash perks from your employer. Think of it as a special calculator for those extra goodies that come with your job.
These calculators use current HMRC rates and thresholds to determine the cash value of your benefits. They help you calculate the correct values for tax assessment, ensuring that the taxable values of your benefits are accurately reported.
For employers, these calculators are essential for accurate P11D and P11D(b) reporting. These are forms submitted to the tax office each tax year to declare employee benefits and their values to HMRC.
Most BiK calculators allow you to input details about company cars, fuel benefits, medical insurance, and other perks. This gives you a clear picture of your tax liability.
Common workplace benefits that need calculating
Company cars are by far the most common benefit that requires calculation. The tax depends on the car’s value, CO2 emissions, and fuel type, with electric vehicles attracting much lower rates. New cars, especially electric or hybrid models, are particularly relevant due to current tax incentives and government schemes that encourage low-emission vehicles.
Private medical insurance is another popular taxable benefit. The amount is based on the premium your employer pays and is added to your taxable income.
Low-interest or interest-free loans over £10,000 count as a taxable benefit. The tax is calculated on the difference between the interest you pay and what HMRC considers a “fair” rate.
Living accommodation provided by your employer typically counts as a taxable benefit. The taxable value of provided accommodation is calculated under detailed HMRC rules considering rent, cost to employer, and the property’s rental value, not simply 20% of salary or rental value.
Mobile phones, computers, and other equipment for personal use may also count as taxable benefits. This applies unless they’re provided purely for business purposes. Gym memberships and work related training provided by employers can also be considered taxable benefits, depending on the circumstances.
How company car BIK calculations work
The starting point for any company car calculation is the P11D value. This is essentially the car's list price including VAT, delivery charges and any optional extras. The bik value is calculated based on the car's list price, its CO2 emissions (how much carbon dioxide the car emits), and other factors such as fuel type and electric range for plug in hybrids.
This value is then multiplied by the appropriate BIK percentage rate. The rate is calculated based on how much carbon dioxide the car emits, with real driving emissions standards affecting the tax rates for a diesel vehicle that is not RDE2 compliant. For new cars, these values are especially important as they determine the BIK tax rates applied.
The resulting figure represents the taxable value of your company car benefit. This amount is taxed, and you’ll pay income tax on it at your marginal rate (20%, 40% or 45% depending on your income tax banding). The amount you pay depends on the car's value, its emissions, and your income tax banding.
If your employer provides fuel for private journeys, there’s an additional calculation. This uses a fixed multiplier (£27,800 for 2024/25) multiplied by the same BIK percentage rate as your car. Private use of a company car can increase your tax liability.
Fully electric cars benefit from low bik rates, making them a tax-efficient choice. Plug in hybrids are taxed based on their electric range, with longer electric range resulting in lower tax rates.
The final tax bill can be reduced if you make contributions towards the car. The final tax paid depends on these contributions and the car's attributes, such as its emissions and value. It can also be reduced if the car is unavailable for part of the tax year.
Your PAYE code is adjusted to reflect the value of benefits in kind, and taxes are deducted accordingly.
BIK rates and what they mean
BIK rates, or Benefit-in-Kind rates, are the key percentages used to calculate how much tax you’ll pay on a company car. Set by the government, these rates are based on the car’s CO2 emissions, meaning the cleaner the car, the lower the BIK rate. For example, electric cars currently enjoy a BIK rate of just 2%, while diesel cars with higher emissions can face rates up to 37%.
To work out the taxable value of your company car benefit, you multiply the car’s list price (including VAT and extras) by the relevant BIK rate. This taxable value is then added to your total taxable income, which determines how much income tax you’ll pay. For instance, if your company car has a list price of £25,000 and a BIK rate of 20%, the taxable value is £5,000. This amount is included in your income for tax calculations.
Employers are responsible for reporting the correct BIK rate and taxable value to HMRC each tax year. Accurate reporting ensures both employers and employees pay the right amount of tax and avoid any penalties. Understanding BIK rates is essential for making informed decisions about company cars and managing your overall tax obligations.
Electric vehicle benefits and BIK
Electric cars are a game-changer when it comes to Benefit-in-Kind (BIK) tax. With a BIK rate of just 2%, fully electric vehicles offer significant savings for both employees and employers. For example, if you drive an electric company car with a list price of £35,000, the taxable value is only £700. At the basic 20% income tax rate, that means just £140 in company car tax for the year, a fraction of what you’d pay for a traditional diesel car.
Compare this to a diesel car with a list price of £30,000 and a BIK rate of 27%. The taxable value jumps to £8,100, resulting in £1,620 in company car tax at the same income tax rate. The difference is clear: electric cars can dramatically reduce your tax bill.
Employers also benefit from offering electric company cars. Not only do they pay lower National Insurance Contributions (NICs) on the lower taxable value, but they also boost their green credentials and support corporate social responsibility goals. As more businesses look to cut costs and emissions, electric vehicles are becoming the smart, tax-efficient choice for company fleets.
Fuel type and its impact on BIK tax
The type of fuel your company car uses plays a major role in how much BIK tax you’ll pay. Diesel cars, for example, are often subject to higher BIK rates because of their higher CO2 emissions. Take a diesel car with a list price of £30,000 and CO2 emissions of 150g/km: with a BIK rate of 31%, the taxable value is £9,300.
In contrast, a petrol car with the same list price but lower CO2 emissions (say, 120g/km) might have a BIK rate of 26%, making the taxable value £7,800. Electric cars, with their ultra-low emissions, have a BIK rate of just 2%, so a £30,000 electric vehicle would only have a taxable value of £600.
For employers, choosing the right fuel type for company cars can make a big difference in overall tax liabilities. Opting for electric or low-emission vehicles can help minimize BIK tax for both the company and its employees, making it a cost-effective and environmentally friendly decision.
Payrolling benefits: what you need to know
Payrolling benefits is a modern approach to handling the tax on company cars and other workplace perks. Instead of waiting for a year-end tax bill, employees have the income tax on their benefits deducted directly from their monthly pay. This system makes it easier to manage your tax obligations and helps avoid any surprises when the tax year ends.
Employers must register with HMRC to start payrolling benefits and are responsible for ensuring the correct amount of tax is deducted each month. This process streamlines tax calculations, reduces paperwork, and minimizes the risk of errors for both employers and employees.
From April 2026, all employers will be required to payroll employee benefits, making it essential to understand and prepare for this change now. By payrolling benefits, companies can improve their tax compliance and reduce the risk of penalties, while employees benefit from a smoother, more predictable tax process. If you’re an employer, now is the time to review your payroll systems and ensure you’re ready for the new rules.
Using benefit in kind calculators effectively
Start by gathering all the necessary information about your benefits. For cars, this includes details, CO2 emissions, list price, and fuel type. The calculator’s results are calculated based on the information you provide, such as emissions and list price, so accuracy here is crucial.
Remember to include the dates when benefits started or ended if they weren’t available for the full tax year. Most calculators allow you to pro-rate benefits for partial years.
Check whether you’re making any contributions towards your benefits. These can reduce your tax liability. For example, payments towards your company car reduce the taxable benefit.
Always use up-to-date calculators that reflect the current tax year’s rates. HMRC changes BiK rates regularly, particularly for vehicles as they push for greener transport options.
After calculating, cross-check the values against your payslip to ensure they match. Your PAYE code should be updated to reflect the value of your benefits in kind, so the correct tax is collected through payroll.
Common mistakes when calculating BIK tax
Using outdated CO2 figures is a frequent error. Always use the officially recorded emissions for your specific vehicle model. Even small differences can change your tax band, as incorrect values can result in the wrong amount being taxed.
Forgetting to account for optional extras on company cars is another mistake. Remember, the P11D value includes all extras, even if they were thrown in “for free” by the dealer.
Many people overlook the separate calculation needed for fuel benefit. If your employer pays for private fuel, this can add a significant amount to your tax bill.
Not adjusting calculations when circumstances change mid-year can lead to incorrect tax payments. If you change cars or give up a benefit, make sure to recalculate.
Assuming all workplace benefits are taxable is also wrong. Some benefits like workplace parking, canteen meals, and certain health screenings are exempt from BiK tax. It's important to understand the tax implications of each benefit to ensure accurate reporting and avoid unnecessary tax charges.
Final Thoughts
Benefit in kind calculations might seem complex, but getting them right ensures you're not paying too much or too little tax. It's worth taking the time to understand your tax position.
Regular reviews of your benefits package can help identify potential savings. Sometimes, a slight adjustment to your benefits structure can result in significant tax efficiency.
Remember that HMRC updates BiK rates annually, usually in line with the Budget. What was tax-efficient last year might not be this year.
Pie Tax
Our friendly team is on hand to guide you through the process and help upload your details to the Pie app, making everything simple and stress-free.
Our real-time calculator gives you a clear picture of your tax calculation, so you’re never caught out by unexpected costs.
We’ve also built smart features like an on-the-go mileage tracker, so you can keep your records accurate without any hassle.
Your personalised dashboard brings everything together, combining your salary, benefits, and other income sources, to give you a complete view of your overall tax position. No more guesswork when it comes to understanding your true earnings.
Curious to see how it works? Explore Pie.tax and discover how we’re making tax calculations simpler for everyone.
