Understanding BIK Benefit in Kind

Learn the basics of how BIK is calculated and why it is important when considering a lease car salary sacrifice here in the UK.

What is a Benefit In Kind Tax (BIK)

Benefit in Kind is occasionally referred to as company car tax. When discussing a car lease the BIK is the amount of tax you pay for having the vehicle as an employment benefit.

The current 3% rate on pure EVs has been fixed by the UK government until April 2026. After this BIK will be increased by 1% each year until 2028. This is great news for anyone considering a salary sacrifice as it gives assurance that all-electric vehicles will maintain their cost-effectiveness for the foreseeable future.

How is Benefit In Kind Calculated

The Benefit in Kind is calculated upon two factors, the car's P11D or the total value of the vehicle and the CO2 emissions related to that specific lease car. The lowest BIK rate is 3% for all-electric vehicles and increases on a sliding scale to 37% for high-pollution vehicles. Once you know the P11D of the vehicle you then multiply it by the BIK Percentage and then multiply it by your Income Tax bracket. Please see an example calculation below.

£40,000 P11D Value x 3% BIK x 40% Income Tax = £480.00/year or £40.00/month

For more information or help calculating your salary sacrifice and potential benefit in kind tax please call the SalSac team on 0330 174 6768 today.

Why BIK Matters in Salary Sacrifice Car Lease Schemes

Understanding how BIK works is essential when considering a car through a salary sacrifice scheme. Although you’re saving money through reduced National Insurance & Income Tax contributions, BIK represents the tax you pay for the benefit of using the car privately. The good news is that for electric vehicles (EVs), this cost remains very low, making EVs especially attractive through salary sacrifice.

BIK and Electric Vehicles and Plug-In Hybrids

Most electric vehicles enjoy significant tax advantages compared to petrol or diesel cars. With BIK rates fixed at 3% until April 2026 and rising slowly thereafter, electric vehicles offer long-term tax stability and affordability. This makes them an excellent choice for both environmentally-conscious drivers and those looking to maximise savings.

BIK for Plug-in Hybrids and Petrol/Diesel Cars

While EVs enjoy the lowest BIK rates, plug-in hybrid and internal combustion engine (ICE) vehicles can still be part of salary sacrifice schemes. However, BIK rates for these cars are higher and depend heavily on their CO₂ emissions and electric-only range. Vehicles emitting more than 50g/km CO₂ attract higher BIK rates. Before deciding to take a Salary Sacrifice Lease, it's worth checking what the BIK cost is for each year that you will have the vehicle.

Is BIK Paid Monthly or Annually?

Currently (24/07/2025) BIK is usually deducted monthly from your salary via PAYE (Pay As You Earn). The figure shown annually is divided over 12 months, making it easier to budget for. It’s important to remember that even after paying BIK, you’ll likely still be saving overall due to the tax-efficient nature of salary sacrifice.