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BIK Confusion

Do I have to pay BIK on a lease car paid through salary, that I am paying the complete cost of?

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I am currently on a scheme where my employer contributes to the cost based on my business miles. I then pay the remainder and claim business miles back at a low rate (12-15ppm). I pay BIK tax on this, which I don't dispute. 
 

The new scheme, which I'm looking at for when this lease ends in Feb next year, is based around work not paying any contribution towards the lease, but allowing me to claim business miles back at a rate of 64ppm, which is the same amount as private car owners. I will cover the lease cost each month, taken directly from salary. My question is - Am I going to have to pay BIK? I've worked out a number of scenarios, but am unsure if in the eyes of the HRMC it will be classed as a BIK. One of the scenarios is that my monthly payments will add up to more than the cash equivalent value. But then I've read on some guidance that 'lease payments are not considered'. 
If someone with expertise in this area could give me some advice it would be greatly appreciated. 
 

Replies (81)

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RLI
By lionofludesch
15th Aug 2020 13:29

64 p a mile ? Here's me thinking top dollar was 45 p.

There's no BIK tax - yet - but some of this 64p looks like it'll be treated as your income.

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Replying to lionofludesch:
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By Nemey82
15th Aug 2020 11:38

Thanks for responding. I’m pretty certain it’s 64p. I only assume because they are changing the scheme for the worse...

I’ll only claim this 64p if I do any business miles and then it would be taxable as paid into wages.

Can I just ask why you believe it to be BIK free? Is it because I am covering the full cost of the lease?

Thanks

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Replying to Nemey82:
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By Paul Crowley
15th Aug 2020 11:41

No idea what your employer is doing

In the private world the 45p per mile is tax free up to 10,000 miles per year

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Replying to Nemey82:
RLI
By lionofludesch
15th Aug 2020 13:32

Nemey82 wrote:

Can I just ask why you believe it to be BIK free? Is it because I am covering the full cost of the lease?

Thanks

No - it's because a benefit in kind is something that isn't money.

Clearly 64p is money, so it's not "in kind".

What you have there is an excessive mileage rate. Nothing to do with benefits in kind.

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Replying to lionofludesch:
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By Anonymous.
15th Aug 2020 12:19

lionofludesch wrote:

64 p a mile ? Here's me thinking top dollar was 45 p.

You didn't see the magic words "Public Sector"! As you say, there's surely a taxable element there?

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By Paul Crowley
15th Aug 2020 11:38

Has your employer agreed something special with HMRC

As Lion says, 64p per mile is above HMRC rates for the private sector

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By Paul Crowley
15th Aug 2020 11:45

You need to speak with HR
taken from salary gross or net?
is it salary sacrifice?

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Replying to Paul Crowley:
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By Nemey82
15th Aug 2020 11:57

Thanks, I’ll double check the 64p. Positive that was quoted. But could be wrong.

No - not salary sacrifice. I wouldn’t touch it. It comes off Gross. Is that where there would be an issue?

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Replying to Nemey82:
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By Paul Crowley
15th Aug 2020 12:08

Nothing sounds right here.
Not salary sacrifice, but your tax and NI reduced by the cost of your privately leased car?

Best talk to HR

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Replying to Paul Crowley:
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By Nemey82
15th Aug 2020 12:29

Thanks Paul.

2 schemes are now offered - salary sacrifice, or a net deduction scheme. The sacrifice scheme is what it says on the tin.

The net deduction scheme used to be called business lease and attracted a contribution based on the number of business miles. I’m on that now and pay BIK. I have a diesel that churns our 118g co2 and it probably attracts a 4% penalty as I don’t think it’s RDE2 compliant. I’ve had it almost 3 years and the agreement is coming to the end.

The new scheme does not pay any monthly contribution, but instead pays you an increased mileage rate, which is 63p per business mile travelled up to 3500 miles, it then reduces to 20p. The increased rate is to make it more equitable for lease car drivers to offset any additional BIK they ‘may’ have to pay. If I were to use my own car for work, I’d receive 56p per mile for the first 3500 miles and then it reduces to 20p.

The lease includes insurance and maintenence. Is this where they’re could be a BIK liability?

The car I’m after is sub 50g/km of co2 and does 31 miles on the electric battery alone. It’s a PHEV Petrol vehicle.

I guess I just need to know whether the fleet company are correct in that there will be no BIK as my contributions outweigh the cash equivalent value. Or are they telling porkies and there will be an element of BIK? I’d red on the HRMC site that Insurance and Maintenence do not count.

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Replying to Nemey82:
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By psimonparsons
17th Aug 2020 11:22

The use of net deduction scheme is incorrect. It’s an HMRC term which means the opposite. After tax or before tax are better used to avoid confusion.

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Replying to Nemey82:
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By Paul Crowley
15th Aug 2020 14:56

Try to think out the whole of the question.
It cannot be both Gross and net

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Replying to Paul Crowley:
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By Nemey82
15th Aug 2020 16:54

Your right. I should.

The current scheme appears on my payslip under 2 deductions; lease car payment and VAT. I presume that’s a Gross deduction.

The new scheme is called ‘net deduction’ which should explain that’s its net deductible.

Naive, but I have no idea what the implications of both are, and how they differ!

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Psycho
By Wilson Philips
15th Aug 2020 11:57

A question that no-one has asked yet - In whose name is the lease?

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Replying to Wilson Philips:
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By Nemey82
15th Aug 2020 12:02

I believe it’s mine, but I’m not 100% on that. I deal with the Fleet company. I choose whatever car I like. The Fleet Company are telling me it’s BIK free and that is what ‘they’ send to HRMC. The car is a low emission PHEV with 49g Co2, but is pricey on the list price. I just don’t know if I trust them.

I pay BIK at present because work pay a portion towards the cost based on my business miles, but this won’t be the case from Feb. They will reimburse my business miles at an agreed rate. I pay for all fuel etc.

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Replying to Nemey82:
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By Anonymous.
15th Aug 2020 12:22

Nemey82 wrote:

The Fleet Company are telling me it’s BIK free and that is what ‘they’ send to HRMC.

If it's not a company car, why would the leasing company make any report to HMRC?

As others have said, the obvious thing to do is to speak to your employer and ask them what is/isn't being reported and taxed/not taxed.

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Replying to Anonymous.:
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By Nemey82
15th Aug 2020 12:39

This is what the fleet company said, who let’s be honest are obviously after my business! I do not know how accurate that is, hence my post on a financial / accounting site in order to get some advice off people that understand tax liability!

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Replying to Nemey82:
Psycho
By Wilson Philips
15th Aug 2020 12:24

You ‘believe’ that it’s yours? You either sign a lease agreement or you don’t - which is it?

There are a lot of anomalies here - you need to provide full and accurate details to have any hope of a meaningful answer.

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Replying to Wilson Philips:
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By Nemey82
15th Aug 2020 12:36

Completely appreciate your answer and apologies. I’m a novice in finance and tax being prodded by a group of significantly more expert people than me. I’m not trying to remove any detail. See my other reply to Paul in terms of detail of the scheme.

I sign the lease agreement - not my employer. It’s just that the cost is taken direct from salary. They’re now calling the new scheme ‘net’ deduction scheme, so would assume they are taking the payment after all after deductions have been paid.

It’s a brand new scheme whereas I am used to paying BIK on my current agreement.

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Replying to Nemey82:
Psycho
By Wilson Philips
15th Aug 2020 12:58

OK - I wasn’t suggesting that you were deliberately holding back info, just noting that complete details are required for a complete answer.

So, you’re entering into a lease. Your employer is deducting the lease payments from your net pay and paying them over to the lease company. You are claiming 64p pet mile for business mileage. All correct?

If I am correct, then there is no BIK, but you should be subject to tax and NI on the excess of mileage payments over 45p/25p.

Actually, although the details are a little sketchy, I would also say that you shouldn’t have a BIK charge at present, although you might just be mis-using the term.

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Replying to Wilson Philips:
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By Nemey82
15th Aug 2020 13:03

That’s spot on. Thanks.

The lease company supply a quote via a portal and it says no BIK. I just want to make sure. The car is in budget subject to there being no BIK added on top.

I’ve just read on my employer Policy that the 64p will be taxed inline with HRMC rules for anything above 45p which agrees with your statement.

Can I just ask the reasons why there would be no BIK? Just so I understand for future reference.

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Replying to Nemey82:
Psycho
By Wilson Philips
15th Aug 2020 13:10

There will be no BIK for the car itself because your employer is not providing you with a car. It is ‘your’ car and you are paying for it.

The excess mileage is taxed and NI’d through payroll as additional earnings.

As far as the current deal is concerned, it sounds as though your employer is paying part of your lease costs (again I assume the lease is in your name). Any such payments should be taxed etc via payroll as additional earnings and not as a P11D BIK.

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Replying to Wilson Philips:
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By Nemey82
15th Aug 2020 13:09

Thank you very much. Makes sense!

Appreciated.

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Replying to Nemey82:
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By Paul Crowley
15th Aug 2020 13:31

If employer is not contributing why is it a work scheme?
You could leave employer out of it and shop around.

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Replying to Paul Crowley:
Psycho
By Wilson Philips
15th Aug 2020 13:37

Perhaps the employees get preferential rates

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Replying to Paul Crowley:
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By Tax Dragon
15th Aug 2020 13:44

Paul Crowley wrote:

If employer is not contributing why is it a work scheme?
You could leave employer out of it and shop around.

An interesting point. In fact, I'm not sure I agree with Wilson. The test in tax law is to do with availability by virtue of employment. If there's an arrangement that is open to an employer's employees (and not available to you or me), then a BIK can arise on the employees that use the arrangement.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
15th Aug 2020 19:18

Hmmm

My daughter’s employer (national firm) has a staff discount arrangement with a number of providers, including car leasing. Employees are under no obligation whatsoever to avail themselves of the facilities in preference to any other provider. There are no benefits reported nor, as far as I am aware, PSA arrangements (although there could well be - I’m not sure how they would be evaluated).

If my daughter decides to lease a car from the company in question that car is not being made available by reason of her employment. The fact that she is entitled to a preferential rate does not, IMO, give rise to an assessable benefit.

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Replying to Paul Crowley:
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By Nemey82
15th Aug 2020 14:22

It’s all arranged via work, through the fleet company they have a relationship with. Their monthly costs are significantly better than arranging one myself and include insurance and Maintenence.

Work provide insurance via their organisation wide policy. Is this subject to BIK?

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Replying to Nemey82:
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By Paul Crowley
15th Aug 2020 14:48

Car insurance paid by an employer is taxable.

See also tax Dragon

HR probably know all the details that were not part of the question asked.
No sensible reliable answer can be given without full complete details.
If you pose a question then being 'prodded' is inevitable if you want a reply rather than expect respondants to guess or make up the missing details

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Replying to Paul Crowley:
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By Nemey82
15th Aug 2020 14:43

Thanks Paul. So insurance isn’t a BIK?

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Replying to Nemey82:
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By Paul Crowley
15th Aug 2020 14:53

https://www.att.org.uk/payrolling-benefits-kind

Employer's choice

Taxable means you pay tax on some basis chosen by employer

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Replying to Nemey82:
RLI
By lionofludesch
15th Aug 2020 15:01

Nemey82 wrote:

Thanks Paul. So insurance isn’t a BIK?

No. It's your car so they're paying your insurance bill.

It's like they're giving you cash. You should be charged tax and NI.

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Replying to lionofludesch:
Psycho
By Wilson Philips
15th Aug 2020 15:12

Depends on whose name the policy is in.

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Replying to Wilson Philips:
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By Paul Crowley
15th Aug 2020 15:25

And who the leasing contract is with.

Only HR can give an answer

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Replying to Wilson Philips:
RLI
By lionofludesch
16th Aug 2020 09:57

Wilson Philips wrote:

Depends on whose name the policy is in.

If the bloke with the policy doesn't own the car, he's suffered no loss in the event of an "adverse incident" and has no claim. The bloke who does own the car has no insurance policy.

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Replying to Wilson Philips:
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By Nemey82
15th Aug 2020 14:25

On my current agreement I receive the yearly p11d paperwork so assume their is an element of BIK that is due.

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Replying to Nemey82:
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By Nemey82
15th Aug 2020 14:28

...I guess the rates are preferential because of the volume of staff we can push their way (we employ 10,000’ish staff)

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Replying to Nemey82:
Psycho
By Wilson Philips
15th Aug 2020 15:03

That doesn’t sound right but I don’t know all the details.

EDIT - the problem with this forum, see if you can guess which comment I was responding to.

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Replying to Wilson Philips:
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By Nemey82
15th Aug 2020 14:44

Wilson Philips wrote:

That doesn’t sound right but I don’t know all the details.

Which bit? All of it?

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Replying to Wilson Philips:
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By Nemey82
15th Aug 2020 15:07

I know. Lots of different opinion also. Guess the HRMC don’t make it as clear as they really ought to.

I have no problem with BIK, I just want to know if a new lease agreement will leave me liable either via BIK or some other route of taxation!

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Replying to Nemey82:
RLI
By lionofludesch
15th Aug 2020 15:28

'quote=Nemey82]

I know. Lots of different opinion also. Guess the HRMC don’t make it as clear as they really ought to.

[/quote]

They're pretty much the same opinions with yours being the exception.

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Replying to lionofludesch:
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By Nemey82
15th Aug 2020 16:40

lionofludesch wrote:

'quote=Nemey82]

I know. Lots of different opinion also. Guess the HRMC don’t make it as clear as they really ought to.

They're pretty much the same opinions with yours being the exception.

[/quote]

Not sure in what context you mean that. I don’t have an opinion as such, hence my asking for advice. If The new agreement is subject to BIK, then its subject to BIK!

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Replying to Nemey82:
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By Paul Crowley
15th Aug 2020 15:58

HMRC are VERY clear on the rules

We all know the rules

What we do not know are the tripartite arrangements between you, the leasing company, and the employer

Then you suddenly add free car insurance as an afterthought, so now it is four parties involved

Forgot the other. Any special arrangements with HMRC like the dumb arrangement my wife suffered from mentioned below

Five parties to the overall arrangements

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Replying to Paul Crowley:
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By Nemey82
15th Aug 2020 16:43

I did put that insurance was included earlier. It wasn’t just thrown in!

I understand what you are saying. It’s all relative on the agreement between the parties and that is something I will seek clarity on.

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By Paul Crowley
15th Aug 2020 15:49

Anecdote

My wiife worked for the local Counil in Education Welfare support. Car ownership requirement of the job.
The council had an agreement with HMRC
No tax on car contribution of £63 pm but tax on all mileage claims. ( the reverse of the proper rules)
Council told staff this was a special arrangement
It was: because all staff paid more tax than would be the case under normal rules.

I submitted expense claims with full details and got a refund of tax every year.
Said she could share the information with her colleagues, explained in detail several times to various groups.
Some of those talked to HR about the agreement and the flavour that eventually came back was that I was making illegal claims and the Council had proper accountants that knew what they were doing.

My wife got refunds of tax every year, not one even had a letter of query.
No body else claimed and they all paid too much tax.

For OP talk to HR get it all in writing before you commit
Get the logic of it all checked by a local accountant

Do not believe that any public sector special arrangements work to your advantage unless you work for HMRC. Theirs always do because they are the only public sector organisation that have staff that understand the rules and will confidently point out if the arrangement results in more tax.

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Replying to Paul Crowley:
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By Nemey82
15th Aug 2020 16:46

Thanks, I agree. I’ll talk to HR / payroll and then I’ll run it by a qualified accountant.

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By Tax Dragon
15th Aug 2020 19:37

FWIW, I think HMRC would say that the arrangements as described would give rise to a company car benefit. And if there're 10,000 employees 10% of whom sign up, it's gonna be worth HMRC's while to check the scheme out.

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Replying to Tax Dragon:
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By Nemey82
15th Aug 2020 20:46

The details of the scheme are as follows;

1. Two Choices - Salary Sacrifice or net deduction. I am interested in the net deduction scheme.

2. Our Org have a relationship with a broker, Middleman, call it what you like. The relationship exists out of them providing business lease agreements for the past 10 years, some of which, inc mine are still live. There would have been a tender process for this.

3. When my business lease ends in Feb 2021, of which I pay BIK. I want to ideally have a replacement car provided through the net deduction scheme. I like the ease and fact no up front large deposits are required. I also like the fact that the scheme includes maintenance and insurance. I guess this is included in the premium, but historically, I.e. my current agreement, the insurance cover is an organisation wide policy and not solely in my name.

4. Through the scheme, the organisation will not contribute any physical payment. The agreement is between me and the broker and then the lease provider. My employer also stipulate that any BIK that the HMRC deems payable is an issue between me and the HMRC. My employer will not be involved.

5. If I do any business miles, my employer will reimburse me at a rate of 63p per mile for the first 3500 miles, then it reduces to 20p per mile. I am liable to pay tax on the amount over 45p as defined by the HMRC. 63p has been provided because the organisation is withdrawing the business lease scheme, and this according to them is a way of trying to offset any additional cost Imposed on lease car users via the net deduction scheme.

6. We employ 10,000 staff. Most do not have a lease agreement arranged via work. Most drive their own personal vehicles for work purposes and receive 54p per mile remuneration.

7. I agree the lease with the broker and the mileage I wish to take, I.e. 13,000 miles per year on a 36 month agreement. They then arrange the lease with the company offering the best rate, for example, LEX, Arval, BMW, VW etc. I also have the option to take out a replacement vehicle cover for an extra charge.

8. Once agreed, they send the lease paperwork / agreement and I sign and return. The car is then delivered whenever that may be, and I pay the monthly amount due via my salary.

9. If I need the car servicing or tyres replacing it is often arranged direct with a dealer and the charge is then sent to lease company, I.e. LEX, Arvada, BMW etc. Same applies with tyres, but this is usually with Kwik Fit.

10. When the arrangement is coming to an end, I either arrange for new quotes, or simply return the car, ensuring it is in a satisfactory condition for its age and compliant with BVLA guidelines. If I have driven over miles agreed, I pay the appropriate rate per mile. Usually 10 or 15p per mile.

Is this enough detail for someone to determine whether I will pay BIK on the vehicle?

I am looking at a 49g/km vehicle with a 31 mile electrical range. The other engine is petrol. The list price is fairly expensive £51,150.

Help appreciated.

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Replying to Nemey82:
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By Paul Crowley
16th Aug 2020 00:16

Never bought or hired a car worth that much
£200 to a local accountant to figure it out would be a real bargain

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Replying to Tax Dragon:
Psycho
By Wilson Philips
16th Aug 2020 09:17

I’m inclined to agree. This is starting to smell like an arrangement designed to get around the post-Apollo changes to the legislation. Why would the employer need to disclaim any responsibility for P11D benefits? (And I suspect that if HMRC were to determine that BIKs did exist the employer would most certainly be ‘involved’)

This is quite different to my daughter’s situation - there are no ‘arrangements’, she is simply entitled to preferential prices should she choose to use a particular supplier.

Thanks (1)

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