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Guide
Personal Car Leasing Explained
Every year, more and more people are choosing to lease rather than buy their new vehicle. In the UK today, personal car leasing now accounts for 1.9 million vehicles.
Company Car Tax
Lots of employers are choosing to lease a car for their employees as a cost-efficient way of compiling a full fleet of vehicles for a business, and employers can even reclaim 50 per cent of the VAT charged on the rental payments. As an employee, if you enjoy a car as part of your employment package, and you earn more than £8,500, you can expect to be charged tax on it.
How it works:
A company car is seen as an ‘asset’ for an employee. And because of that it’s taxed as something called a ‘Benefit in Kind’, or ‘BIK’.
And the BIK you’ll pay is determined by a few different things - namely the original list price, the CO2 emissions it produces, and the type of fuel it uses.
This is where leasing an electric or plug-in hybrid vehicle, as opposed to a traditionally-fuelled car, can really pay dividends.
For example, a fully-electric vehicle attracts a BIK tax of just 1% for the year 2021-22. An efficient plug-in hybrid with an electricity-powered range between 40 and 69 miles attracts a BIK cost of 7%. However, a petrol car producing 130-134 g/km of CO2 attracts a BIK tax of 30% for the year 2021-22, so you can see for yourself the cost implications.
What happens next is that the vehicle’s list price - called the ‘P11D’ value - is multiplied by the BIK rate, as well as the motorist's own personal tax rate, which gives you the annual amount of company car tax payable.
That cost is then typically deducted via PAYE.
Confused? Let us give you an example
So, if you’re got a lease car with a list price of £30,000, and with a BIK rate of 1% because it produces no harmful emissions, the ‘benefit’ to the employee has a value of £300 - i.e. 1% of the £30,000 list price.
If you’re in the 40% tax bracket overall because of how much you earn, you’ll pay 40% of that £300 - i.e. £120 per year.
The (BIK) tax bands shift slightly every year, with new percentages due to be introduced for 2022-23. Overall, the Government is still trying to incentivise electric car leasing, which means that for 2022-23, zero-emissions electric vehicles attract a BIK tax of just 2%.
Where do vans and pickups stand?
For vans and pickups there is a standard BIK amount, which again shifts slightly each year so it’s worth checking with your employer for up to date figures.
The other important thing to note when it comes to BIK is that you can instantly add an extra 4% for diesel powered cars, up to a maximum of 37%, though that doesn’t apply to more efficient plug-in hybrid diesel vehicles.
Additional tax is also payable if your employer contributes towards the fuel that you use for driving not associated with your job.
If you’re confused or unsure about any aspect of leasing a car, give the Select Car Leasing team a call on 0118 467 9189
For more information on leasing, click one of our other guides below:
Learn More
Guide
Which fuel type suits me best?
When considering which car to lease, engine type will be one of the key decisions to make. With more choice than ever before however, we know this can be a complicated area.
Learn More
Guide
Car Leasing and Insurance
Just like buying a car, when leasing you’ll need to obtain fully comprehensive car insurance* to protect not only you and your property but to also protect other people and their property as well. It's also worthwhile in considering key insurance - it's a great peace of mind service for replacement of keys and locks in the event they are either lost or stolen.
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