Hi All. A client has asked for some help on a salary sacrifice calc and it is not something I come across that often and was wondering if my understanding is correct:
A client wants to provide a car (or an employee has requested it) via an Optional Remuneration Arrangement (salary sacrifice).
The monthly cost on lease is £840 including VAT
Cost of the car is £75,785 (this includes a discount on list price) and has an official CO2 figure of 69g/km.
So my understanding is as follows:
Employee sacrifices £840 per month thus reducing his taxable income by £10,800 per annum and reducing his tax (at 40%) by £4,032. No effect on employee NI as he earns more than £60,000 p.a. plus bonus.
At the end of the year, the car needs to be included on a p11d. Value of the car is £75,785 and the BIK rate is 18% (2020/21) therefore the value of the benefit is £13,641 (greater of the sacrifice amount and BIK). Tax at 40% on this benefit is £5,456.40.
Therefore the employee is £1,424 worse off rather than if he took the salary and bought it himself.
The employer is better of as he doesn’t have to pay 13.8% NI on the £10,800?
Is my understanding correct?
Thanks in advance.