How do 'optional remuneration arrangements' work?

Struggling to calculate BIK

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I have a client who is looking to remove an employees car allowance and give him a company car instead. Cash equivalent (normal rules) = £10k. Car allowance (to be foregone) = £5k.

I've used Payroll Manager to calculate BIK, which comes out at £10k. It;s the same figure if I declare £5k 'foregone' or not. Either way is the same.  When using HMRC's BIK calculator, it's saying the BIK is only £5k. Common sense tells me this doesn't make sense.

So I'm confused - can anyone help please? I'm not sure if the BIK is £10k + the £5k foregone, £10k per PM, or £5k per HMRC?!

Thanks for any help

 

Replies (13)

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By Tax Dragon
28th May 2019 10:44

You have probably made the mistake of putting £10,000 where it asks for the list price.

Put the list price in there, you'll get the right answer.

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Replying to Tax Dragon:
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By fellowcraft
28th May 2019 10:56

Nope - it's not that. It's in correctly

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Replying to fellowcraft:
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By Tax Dragon
28th May 2019 11:05

Odd. If I put £10k in, I get £5k out. If I put a car with a £10k BIK (eg a £27,028 2.5L diesel) in, I get £10k out.

I wonder where we do differ.

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Replying to Tax Dragon:
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By fellowcraft
28th May 2019 11:20

Please try this in HMRC's calculator:

TY 19/20, optional arrangement = no, amount foregone N/A, available 1.6.19-5.4.20, list price £37k, date reg 1/1/2019, fuel type diesel, engine capacity 1.4-2.0, co2 = 137, private fuel = no. You should have a BIK of £9,715

If you click 'back' and change Optional Arrangement to Yes, and amount foregone to £5k, then the new BIK is only £5k.

Maybe I have dropped a clanger, I just don't understand how it works, or if the calculator is wrong. PM will calculate the cash equivalent at £10,968 BIK

So 3 different figures. Have no idea which one to use

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Replying to fellowcraft:
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By Tax Dragon
28th May 2019 11:29

That's weird. If you put start date of 06.04.19, you get the full BIK; if you start at 07.04.19, you get £5,000.

Unless there's some excessively odd rule (another "oddity" I don't know about... sadly the last one did not get explained), the calculator is broken.

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Replying to Tax Dragon:
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By fellowcraft
28th May 2019 14:43

Thanks. Glad to know it's not me going crazy. I've just tried with and without the £5k optional remuneration, and the BIK is exactly the same in both. Also tried same in PM, same BIK in both scenarios, but cash equivalent differs to HMRC calculator

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Psycho
By Wilson Philips
28th May 2019 14:55

What’s really odd is that you can put in varying figures for the amount foregone right down to about £100 and that is the BIK. Try £50 and it reverts to the full BIK

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Replying to Wilson Philips:
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By 2003bluecat
28th May 2019 15:30

When I do it with the amount forgone as £1754 it gives the BIK as £9715 but go to £1755 and it reduces the BIK to £1755. Very odd.

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Replying to 2003bluecat:
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By Tax Dragon
28th May 2019 15:44

Do a bit of maths on yours and Wilson's findings and you might be able to work out where the formula is wrong. (I'm not saying I have... I am actually doing some work!... but I reckon it's doable.)

Maybe it can't handle leap years.

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Replying to Tax Dragon:
RLI
By lionofludesch
28th May 2019 16:19

Tax Dragon wrote:

Maybe it can't handle leap years.

Maybe it's carp software.

Not unknown at HMRC, obviously.

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By 2003bluecat
28th May 2019 15:24

Taken from HMRC EIM44010

"Where a benefit is chosen instead of some form of cash pay, the taxable value of the benefit is the greater of the amount of cash pay given up and the taxable value under the normal benefit in kind rules. Where the two are the same, then apply the normal benefit valuation rules."

Which would tie in with what you are getting. So in theory unless you are giving up more 50% or more of the benefit charge you get no reduction in the taxable benefit. Unless I'm missing something.

EDIT: Try putting £5,001 as the amount forgone in Payroll Manager and it should make that the BIK in theory. The issue is that the BIK in payroll manager is £10k and not the £9,715 on HMRC.

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Replying to 2003bluecat:
Psycho
By Wilson Philips
28th May 2019 15:50

How does that tie in?

There will never be a reduction in the taxable benefit. It will always be at least the 'normal' BIK, but could be greater.

Entering £5,001 shouldn't make any difference if the 'normal' BIK is greater than that.

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Replying to Wilson Philips:
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By 2003bluecat
28th May 2019 16:33

I agree - I must have been having a moment. Although in my defence it was brought on by HMRCs nonsense of a benefit calculator.

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