How is Fuel BIK Tax Calculated?

The Fuel BIK Tax is calculated using the following formula:

Fuel BIK Tax = Fuel Benefit Charge x CO₂ Emissions Band Percentage x Employee's Income Tax Rate

Here’s a breakdown of each component:

1. Fuel Benefit Charge
   This is a fixed value set by the government for each tax year. For the 2024/2025 tax year, the charge is £27,800.

2. CO₂ Emissions Band Percentage
   This depends on the vehicle’s CO₂ emissions (g/km) and the fuel type (petrol, diesel, electric, etc.). The percentage ranges from 2% for low-emission vehicles to up to 37% for high-emission vehicles.

   • For petrol and diesel cars, check the current CO₂ band table provided by HMRC.
   • Diesel vehicles without RDE2 compliance incur an additional 4%, capped at 37%.

3. Employee’s Income Tax Rate
   This is the employee's personal income tax rate (e.g., 20%, 40%, or 45%) based on their taxable income.

Example Calculation

Let’s calculate the Fuel BIK Tax for an employee driving a petrol vehicle with CO₂ emissions of 150 g/km:

1. Fuel Benefit Charge: £27,800 (fixed value for 2024/2025).
2. CO₂ Emissions Band Percentage: 33% (based on CO₂ emissions of 150 g/km).
3. Employee’s Income Tax Rate: 40% (higher-rate taxpayer).

Calculation:

• Fuel Benefit = £27,800 x 33% = £9,174
• Tax Payable = £9,174 x 40% = £3,669.60 per year
• For the monthly BIK /12 = £305.80 per month

This means the employee would pay £3,669.60 per year or £305 per month in tax for the fuel benefit annually.

How to Work It Out for Your Vehicle?

To calculate your Fuel BIK Tax:

1. Find the vehicle’s CO₂ emissions from the V5C logbook or manufacturer specifications.
2. Identify the corresponding percentage for your emissions band.
3. Multiply the Fuel Benefit Charge by the emissions percentage.
4. Apply your income tax rate to the result.

Key Considerations

• If the employer does not provide free private fuel, there’s no Fuel BIK Tax liability.
• For employees with low annual private mileage, it may be more cost-effective to reimburse fuel costs than to pay Fuel BIK Tax.

Vehicle Excess duty (VED)

Vehicle Road Fund Licence or Vehicle Excess duty (VED) as its officially known affects all vehicle drivers and is compulsory to have. Depending when your car was registered will depend on what you pay.

Cars registered on or after 1/4/17 will be charged the standard rate as below.

Alternative fuel vehicles include hybrids, bioethanol and liquid petroleum gas.

Vehicles with a list price of more than £40,000

If your car or motorhome list price (when new) is more than £40,000 you will have to pay an extra £410 a year

You do not have to pay this if you have a zero emission vehicle.

The list price is the published price of the vehicle before it’s registered for the first time. It’s the price before any discounts are applied.

Any extras are included, so a car could have a new value of £39895. If you purchase an extra for £106. The new cost of the car will be £40,001 therefore you will may the additions VED.

You only have to pay this rate for 5 years (from the second time the vehicle is taxed).

Cost of VED for cars over £40,000

First tax payment when you register a vehicle

When you first register a vehicle from new you pay a rate based on the vehicles CO2 emissions.

Cost of new vehicle first year.

This payment covers your vehicle for 12 months.

Lease Vehicles

When leasing a vehicle the VED and the first registration fee is included within the rental of the vehicle. 

You may notice a small increase in the rental cost each year to reflect the cost of the increase in VED.