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Salary sacrifice for EV

Query on calculation

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Our client (ltd co) leases an EV which is provided to the MD under a salary sacrifice arrangement. Company pays the lease company, director foregoes monthly salary equivalent to the lease payment.

In computing the BIK for P11d purposes, after taking the list price of the EV is there a reduction for amounts contributed by the director by way of salary sacrifice?
Or is it a straight 1% BIK on the list price?

Having a complete brain fart on this today!

TIA

 

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By rmillaree
29th Jun 2022 08:43

You are right to stop and think here.
Dont have the answer but bear in mind the info posted below - presuming info is correct (just taken from some random website)

The obvious follow up point is does this need to be done via salary sacrafice if that turns out to be semi tax trap ? - would seem silly to be paid discretionary bonus taxed and suffer such a charge on salary sacrafice if simply getting less bonus and having no salary sacrafice is an option.

https://bluepoppy.co.uk/blog/hmrc-clarifies-salary-sacrifice-car-scheme-...
For vehicles ordered from January 2021
A driver will be taxed on whatever the greatest is between:
a) the Income Tax due on the amount of salary sacrificed on the finance rental of the vehicle, or
b) the Benefit in Kind (BIK) charge on the car, which is determined by the P11D and CO2 emission levels of the vehicle.

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Replying to rmillaree:
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By MJShone
29th Jun 2022 09:42

The optional remuneration rules don't apply to vehicles with CO2 emissions of 75g or less. See s120A ITEPA 2003 (particularly 120A(3)(b)) and EIM44060

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Replying to MJShone:
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By rmillaree
29th Jun 2022 09:44

Thanks for that MJShone - useful info.

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By Hugo Fair
29th Jun 2022 09:44

Whilst there appears to be an almost infinite number of scheme providers, it is not strictly correct to refer to them as Salary Sacrifice schemes (which historically had the connotation of being exempt from Tax and NICs - but now only applies to a limited number of BiKs that do not include provision of a car, electric or otherwise).

So, as a non-cash benefit, you need to work out the value of the benefit ... which will be the higher of the 'amount of salary given up' or the 'earnings charge under the normal BiK rules'.

And, to answer OP's question, I can't see any way in which an "amount contributed by the director by way of salary sacrifice" can be used to reduce the BiK charge ... wouldn't that be double-counting?
Although I can't find a specific point of reference, I'm fairly sure that any 'making good' by the employee has to be paid as a deduction from Net Pay (for that reason).

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Replying to Hugo Fair:
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By Hugo Fair
29th Jun 2022 09:48
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Head of woman
By Rebecca Cave
29th Jun 2022 12:03

The 2017 changes to the taxation of salary sacrifice (also known as optional remuneration arrangments) do not apply to low emission cars, see Employment income manual: https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim44060

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Replying to Rebecca Cave:
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By Hugo Fair
29th Jun 2022 12:31

True, but this merely states that:
"The optional remuneration arrangement rules do not apply to cars with CO2 emissions of 75 grams or less per kilometre.
Cars with CO2 emissions of 75 grams or less per kilometre continue to be taxed on the cash equivalent of the benefit without having to make a comparison with the salary foregone."

Whereas OP's original question was whether an "amount contributed by the director by way of salary sacrifice" can be used to reduce the BiK charge?
To which I feel the answer is No - for the reasons (and reference) given above.

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Old fat furry cat-puss
By bagpuss1968
30th Jun 2022 10:43

Given the exemption referred to in other comments here about low & zero emission vehicles, my understanding is that the calculation of the BIK in respect of a vehicle is entirely independent of any salary sacrifice/exchange arrangement related to the vehicle (salary sacrifice being simply a method to reduce NI costs (and possibly Income Tax if your marginal rate comes down as a result of the gross salary element forgone))?

I would imagine that the contribution aspect would come into play if/for any amounts paid over out of net pay (but not really sure that this would be a consideration for low/zero emission vehicles with such a low BIK %age)?

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