Locating your CO2 figure (it will fall within a band or range) will give you the car’s current BIK rate, expressed as a percentage. Taking your car’s P11D value, multiplying it by its BIK rate and multiplying the resulting figure by your income tax band – for example, £20,000 x 25% x 20% – will give you your annual BIK tax charge, which in this case is £1000.
Note that BIK rates have a tendency to change every financial year, although in 2020, the government announced that BIK tax rates published in 2019 will be adopted and frozen at 2022/23 levels for an additional two years. The highest BIK rate is currently 37%.
Calculating the BIK rate on diesel cars
From being the darling of the environmental lobby, diesel cars are now largely frowned upon, with the result that emissions tests have become tougher for them. The latest – mandatory on all new diesels sold from January 2021 – is called Real Driving Emissions Step 2 (RDE2).
Diesels registered before this date that aren’t RDE2-compliant (some gained RED2 compliance early, so check with your supplier) attract a 4% surcharge on their published BIK rate, up to 37%. Remember that if you’re considering a used diesel as your company car. To be clear, all new diesels are RDE2-compliant, meaning the 4% surcharge does not apply.
Diesel-electric hybrids are classed as alternatively fuelled vehicles so avoid a surcharge whether they’re RDE2-compliant or not.
Calculating the BIK rate on electric cars
Zero CO2 emissions ensures that electric cars enjoy the lowest BIK rate. In the tax year 2020/21, it was actually 0%; but in 2021/22, it rose to 1%; and from 2022/23, it will be 2%. Either way, EV drivers pay much less company car tax than others.
Calculating the BIK rate on hybrid and plug-in hybrid cars
Owing to their low CO2 emissions, hybrid and plug-in hybrid (PHEV) cars enjoy the next lowest BIK rates. However, since their emissions are linked to them being able to travel on battery power alone, their BIK rates are calculated using a combination of CO2 emissions and official electric-only range.