Hi
When calculating BIKs on motorbikes, I understand the concept of the 20% rule, and to proportion the BIK between business use and personal use. What I can't understand is that, for NIC purposes only, the Gross amount is NIC'd without a deduction for PU. That means your client will be paying 13.8% NIC on the business fuel proportion.
I.e, Motor bike costing £10k, 90% business use, total fuel cost £2.5k pa.
BIK would be £10k x 20% x 10% = £200 on the bike, and £2.5k x 10% = £250 for the fuel. But for Class 1A purposes, the fuel BIK would be the gross £2.5k, even though 90% of that figure was for bona-fide business purposes.
Please let me know if I've got the wrong end of the stick!
Thanks
Replies (5)
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You do not have the wrong end of the stick, but you are missing things out of the benefit calculation or simplifying.
The gross benefit is £10,000 x 10% + £2,500 fuel, plus the cost of road tax, insurance, repairs, etc.
Let's assume that is £12,500 in total though for arguments sake, and call that X.
Next you deduct any amounts paid for private use (Y - £0) and an expense amount that represents the business use (Z - £12,500 x 90% = £11,250).
Now the amount that is liable to Class 1A NIC is X, unless X - Y - Z brings the amount of chargeable benefit to nil, which it doesn't.
So you have a taxable benefit of £1,250, but the amount liable to Class 1A NIC is £12,500.
What you could do is have the director make a contribution of £1,250 for the private use, then there would be nothing liable to either tax or Class 1A.
ROFL I was not! I do of course mean £10,000 x 20% = £2,000 plus £2,500 fuel = £4,500 ins my second paragraph.
Subsequent references to £12,500 should be to £4,500. £4,050 should then also be substituted for £11,250, and £450 should be substituted for £1,250.