BIK tax applies when your employer provides you with a non-cash benefit that is available for private use (there are some exemptions, such as mobile phone).

HMRC treats this non-cash benefit as taxable income and as such, you pay Income Tax on it.

Valuation of the non-cash benefit

• HMRC defines the rules for how these benefits are valued
• In the example of a Company car, the taxable value depends on its P11d value (including cost options), it’s CO₂ emissions and for ‘Plug-in Hybrid Electric Vehicles’, it’s pure electric range.
• The value of the benefit is determined by multiplying the P11d value of the car by the equivalent percentage derived from the CO₂ and pure electric range.
• The value of the benefit is then adjusted through your tax code meaning that you pay Income Tax on the benefit at your marginal tax rate (e.g. 20%, 40%).
• Your employer will submit the relevant information to HMRC but we recommend that you also enter your company car details using the Government Gateway yourself.

NB: The pure electric range for Plug-in Hybrid Electric Vehicles is removed from the calculation in April 2028. Thereafter, the equivalent percentage is derived from the CO2 alone.

For further information, please refer to this link.