Introduction
Employees who are provided with a company vehicle as part of their employment, could be deemed as being in receipt of a taxable Benefit in Kind when using the vehicle privately. It is important that the correct status of private use is recorded, to ensure the correct treatment by HMRC for tax purposes.
Benefit in Kind Tax
Benefit-in-kind (BIK) is a tax applied to employees who receive benefits or perks (such as a company vehicle) from their employer, in addition of their salary.
Every vehicle has a BIK percentage banding, dependent on things such as whether the vehicle is a car or a commercial vehicle (van), and fuel type.
- Car BIK banding is based on CO2 emissions and a P11D value (which is the list price including extras and VAT, but without the first year registration fee and vehicle tax)
- Van BIK is a flat rate of £3,960 until the end of the 2025/26 tax year, but is subject to change in following years
The percentage of the Benefit which you pay in tax, is the same as the percentage you would have paid if you received the same amount of the Benefit as salary.
Opting Out
If you are provided with a company vehicle then you will automatically be opted into private use of that vehicle. The ability to opt out of private use is dependent on whether the vehicle is a car or a commercial vehicle.
It is only possible to opt out of private usage of a company car if you don’t complete any personal miles at all. Where a car is provided by reason of employment and it is available for private use, with at least one private mile undertaken in the tax year (including commuting to a regular place of work), then a car BIK arises.
It is possible to opt out of private usage of a company van when that level of private use is deemed as insignificant. Significant private use of a company van will mean a BIK arises.
Significant vs Insignificant Private Use
Employees who use their company van for significant private use will incur a BIK which is taxed by HMRC.
Examples of significant use are:
- Regularly taking the van to the local supermarket
- Using the van for holidays
- Using the van outside of work for social activities
- Travelling back and forth to a regular place of work such as an ABCA Office (which is different to field based employees travelling to and from ABCA sites)
Employees who use their company van for insignificant private use, have the option to opt out. Opting out means that the company van is only used for business use, which does not give rise to a Benefit in Kind.
Examples of insignificant use are:
- Regularly making a slight detour to purchase a newspaper at a local newsagent on the way to work
- Calling in at the dentist on the way home from work
- Taking household waste to the tip a couple of times a year
Declaration
Employees provided with a company vehicle will automatically be opted into private use of that vehicle.
It is only possible to opt out of private usage of a company car if you don’t complete any personal miles at all.
You should only tick the box and sign below if you wish to OPT OUT of private usage for a company vehicle. HMRC will be informed that you are not receiving the Benefit in Kind. When signing below, you confirm that you are aware of when a BIK will arise and the differences between significant and insignificant use of vans.
When you OPT OUT, we will be required as part of HMRC compliance, to conduct checks to verify private vehicle usage. If we have evidence to suggest your OPT OUT declaration is invalid, we will opt you in and report the benefit in kind to HMRC as normal, which will be picked up in the annual P11d process.
Opting out is valid from the date of signature below.