BIK rates and company car tax
Company car tax rates are designed to encourage company car drivers to choose cars with lower levels of CO2 and (from April 2018) NOx emissions; incentives are offered both to the company and to the recipient of the vehicle to select low emission vehicles.
Under the current system, company and employee company car tax are both based on a percentage of the official value of the car (called the 'P11D'), the percentage being primarily determined by the car's CO2 emissions. For the employee, the Benefit-in-Kind (BIK) is then taxed at the appropriate personal tax rate - usually collected through PAYE.
Company car tax payable by an employee is based on the vehicle's P11D value multiplied by the appropriate BIK rate (determined by the car's CO2 and fuel type) and the employee's income tax rate (basic rate of 20%, higher rate of 40% or additional rate of 45%).
Company car BIK rates 2018 - 2021
Current company car BIK rates start at 19% for petrol and RDE2 compliant diesel cars, the rate increasing in up to 1% increments as CO2 bands rise, up to a maximum of 37%. From 06 April 2018, to account for the greater level of NOx emissions, a 4% diesel car tax supplement is payable which applies for non-RDE2 compliant diesels, the vast majority of current diesel models.
All hybrid cars receive a reduced BIK rate as a result of their lower CO2 emissions, which tends to reduce their BIK rates by at least 2%, and often more. Note that for diesel hybrids, the 4% diesel surcharge does not apply, since they are not classed as diesel-powered cars, but alternatively fuelled vehicles for tax purposes.
Electric vehicles are also rewarded with lower BIK rates with battery electric cars BIK-rated at 13% for FY 2018/19, increasing to 16% during 2019/20 and then reducing to only 2% for FY 2020/21. From April 2018, plug-in hybrids with CO2 emissions up to 75 g/km are BIK-rated at 13% to 16% (depending on CO2 emissions), with rates increasing by 3% for FY 2019/20.
From April 2020, new BIK bands come into force for plug-in models with CO2 emissions of 1-50 g/km, with the new BIK levels dependent on the official electric-only range in miles. Those with a range in excess of 130 miles are classed as pure-electric models for the purposes of BIK ratings (at 2%) , while those plug-in models with a range of less than 30 miles will be rated at 14%.
The table below shows how the percentage BIK rates vary with vehicle CO2 and electric-only range. The table represents petrol, diesel and electric related BIK rates for 2018-2021.
|Company Car Tax BIK Rates April 2018 to March 2021|
* Rate applies to diesel vehicles that do not meet the RDE2 standard. For diesel-hybrids, the Non-RDE2 4% diesel surcharge does not apply. All BIK rates show apply to cars registered since 1998.
Source: HMRC 2017.
4% supplement for non-RDE2 compliant diesels
From April 2018, HM Treasury levies a 4% diesel supplement over petrol models to account for greater levels of NOx emissions for the majority of current diesel cars. The supplement applies to diesel cars not compliant with the Real Driving Emissions Step 2 (RDE2) test, which confirms that real-world emissions are close to, or better than, the current Euro 6 emissions standards for NOx.
The RDE2 test was developed in response to the Volkswagen emissions scandal and other subsequent research which shows that even the latest Euro 6 models are associated with higher NOx emissions when driven on real roads as compared to the official test which is conducted on a rolling-road in a laboratory.
As of the start of 2018, no diesel models have yet passed the RDE2 test as the procedure itself is under final review. However, new diesel models are expected to be submitted to the test from April 2018. As RDE2 compliant models become available on the UK market, Next Green Car's tax calculators will automatically remove the 4% supplement where applicable.