What is Benefit-in-Kind (BiK)
Read our simple guide on how Benefit-in-Kind (BiK) tax impacts Salary Sacrifice.
What is Benefit in Kind?
Benefit in Kind is any benefit or perk that an employee receives that isn't part of their salary. His Majesty's Revenue and Customs (HMRC) will require you to pay tax on any Benefit in Kind (BiK) that you receive. This is called Benefit in Kind (BiK) tax. Whilst some employee benefits don't require tax to be paid on them, such as childcare vouchers or free meals on site, a company car will almost always require the employee to pay BiK tax. Depending on the vehicle, this can be more expensive than others.
The amount of BIK tax you pay depends on several factors. Firstly, the vehicle's P11D value or list price plays a significant role as the higher the value of the vehicle, the higher the BIK tax you must pay. Another main factor is the car’s CO2 emissions, this seriously affects tax rate. Car with higher emissions are taxed more heavily, while electric cars attract lower tax rates. For example, if your company car is valued at £25,000 and the BIK rate is 25%, your taxable benefit would be £6,250. You would then pay 20% of the taxable benefit if you pay the basic rate of income tax, or 40% if you pay the higher rate of income tax.
How can I reduce the amount I pay in Benefit-in-Kind?
The best way to ensure that you pay a minimal amount of Benefit-in-Kind is to choose an electric car to Salary Sacrifice. Electric vehicles (EVs) are the most tax-efficient, with BIK rates as low as 3% as of the 2025-26 tax year. If an EV doesn't work for you, then hybrid vehicles may also be a cheaper alternative to a traditional combustion engine vehicle, but are still significantly more expensive than an electric vehicle. Additionally, opting for a less expensive car can reduce the BIK tax burden, as the tax is calculated based on the car’s list price.
How do I pay for Benefit-in-Kind?
BIK tax is typically collected through the Pay as You Earn system, meaning the tax is automatically deducted from your salary. Your employer will also report the value of your company car benefit to HMRC via a P11D form at the end of the tax year. If you complete a Self-Assessment tax return, you will need to include the BIK details for your company car.