Class 1A NIC on motorbike fuel

Class 1A NIC on motorbike fuel

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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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Portia profile image
By Portia Nina Levin
10th Feb 2016 12:57

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.

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Replying to SJO2009:
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By fellowcraft
10th Feb 2016 13:09

Thanks. Where are you taking the 20% into account?

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Portia profile image
By Portia Nina Levin
10th Feb 2016 13:16

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.

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Replying to Paul Crowley:
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By fellowcraft
10th Feb 2016 13:22

Yup we are in agreement (I think....)

So gross BIK is £4,500. Net BIK is £450 for tax purposes, but BIK for NIC purposes is £4,500.

Therefore company is effectively paying Class 1A on business fuel!

So he could simply eliminate the NIC'able BIK by journal to DLA & motor expenses of £450, which isn't even the amount of the NIC'able BIK?

I need a drink!

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Portia profile image
By Portia Nina Levin
10th Feb 2016 13:26

That is how it works, because of SSCBA 1992, sections 10(7)-(7B).

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