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Should employees be paying Benefit in Kind tax?

My employer offers a car lease scheme whereby the employee pays for the lease and pays BIK tax.

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My employer offers a car lease scheme whereby the employee pays for the lease and pays BIK tax. This is paid via salary sacrifice, so you pay less tax, NI and pension contributions. I've been considering leasing a car through this scheme, but cannot understand why I would have to pay BIK tax if I'm paying the cost of the lease. It's not a company car and the lease costs are not particularly competitive (for example a Fiesta ST came out at £310 for the car after tax, NI and pension contribution reductions and £140 BIK tax, so £450 a month). I can't really see what the employer is contributing, so why is this considered a Benefit in Kind? 

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By Paul Crowley
18th Sep 2020 13:55

Salary sacrifice means paying less tax, less NI, less pension
BIK puts the tax back in the system

Who pays the insurance, employer or You?

Try the arithmetic by getting full salary and deal direct with lease company

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Replying to Paul Crowley:
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By Palmerini
18th Sep 2020 14:08

It is offered as including insurance, road tax and maintenance/servicing.

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Replying to Palmerini:
RLI
By lionofludesch
18th Sep 2020 14:20

Palmerini wrote:

It is offered as including insurance, road tax and maintenance/servicing.

Ah right. Light is beginning to dawn. Is the lease in the company's name ?

One of the quirks of the car benefit is that it's a scale charge, calculated as a function of CO2 emissions and list price of the car. What the cost is to the employer is irrelevant and may well be very different to the amount you're taxed on. You don't seem to be paying for the car lease. Rather, you're getting a reduced salary and a free car.

The tax can have surprising results. An expensive but low emission car can be cheaper from a tax point of view than a low value gas-guzzler.

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Replying to lionofludesch:
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By Palmerini
18th Sep 2020 14:24

I have to get authorisation from my employer, but as far as I'm aware the lease would be in my name and I'd be responsible for any early redemption fees etc.

So if we take the Fiesta ST as an example. I earn £38,600 so I'm a 20% tax payer. The cost of the car is broken down as follows:

Salary Safrifice: £577.04
Savings on NI: - £69.25
Savings on Tax: - £104.68
Savings on Pension: - £53.67
Total Savings: - £227. 60
Monthly Pay Reduced By: £349.44
Monthly Car Tax Liability: £137.73
Total Cost: £487.19

This includes insurance, road tax and maintenance/servicing.

I see it that I'm paying for the car (£349.44) and I'm paying tax for something that is classed as a BIK, but can't see where the employer is providing me with a benefit. I'm paying for it! It doesn't make sense to me. If it were a "company car" I'd only be paying the £137.73. Why is it treated as a benefit? Plus you can lease the car privately for a lot less than £350 a month so they're clearly building the insurance, road tax and maintenance into the salary sacrifice. Seems like a bit of a scam.

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Replying to Palmerini:
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By Paul Crowley
18th Sep 2020 17:04

Your employer is paying £577
That is the lease cost to the employer.

You appear to be a mere £350 worse off before BIK
After BIK you are paying £487, still cheaper than cost of lease

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Replying to lionofludesch:
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By Paul Crowley
18th Sep 2020 14:32

Identical thread not long ago
Public sector

Employer does the deal to provide a company car
No real contribution by employee, as salary sacrifice

@OP

If a real contribution then contribution would be after tax, NI, and pension
has been paid

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Replying to Paul Crowley:
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By Palmerini
18th Sep 2020 14:35

Sorry, didn't think to search recent posts. Thanks for your help.

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By lionofludesch
18th Sep 2020 14:05

I agree. If you're not happy with the deal, look for alternative deals.

That said, if you're entering into a contract with the leasing company, I'm bu99ered if I see why this is regarded as a BIK. Some numbers might help us understand what's being proposed as your tax position.

There's no such thing as BIK tax, by the way. It's just income tax.

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Replying to lionofludesch:
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By Palmerini
18th Sep 2020 14:21

So if we take the Fiesta ST as an example. I earn £38,600 so I'm a 20% tax payer. The cost of the car is broken down as follows:

Salary Safrifice: £577.04
Savings on NI: - £69.25
Savings on Tax: - £104.68
Savings on Pension: - £53.67
Total Savings: - £227. 60
Monthly Pay Reduced By: £349.44
Monthly Car Tax Liability: £137.73
Total Cost: £487.19

This includes insurance, road tax and maintenance/servicing.

I see it that I'm paying for the car (£349.44) and I'm paying tax for something that is classed as a BIK, but can't see where the employer is providing me with a benefit. I'm paying for it! It doesn't make sense to me. If it were a "company car" I'd only be paying the £137.73. Why is it treated as a benefit? Plus you can lease the car privately for a lot less than £350 a month so they're clearly building the insurance, road tax and maintenance into the salary sacrifice. Seems like a bit of a scam.

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By ngaccounts
18th Sep 2020 14:22

If you're paying the full cost of the vehicle (by way of an equivalent deduction in salary i.e salary sacrifice) then there is no BIK. Ask your employer what they mean by this. As already mentioned, there is no BIK tax, you effectively end up paying more income tax through an adjustment in your tax code, but I cannot see why that would apply here.

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Replying to ngaccounts:
RLI
By lionofludesch
18th Sep 2020 14:37

ngaccounts wrote:

If you're paying the full cost of the vehicle (by way of an equivalent deduction in salary i.e salary sacrifice) then there is no BIK. Ask your employer what they mean by this. As already mentioned, there is no BIK tax, you effectively end up paying more income tax through an adjustment in your tax code, but I cannot see why that would apply here.

Well, here's where the confusion seems to lie. The OP seems to think he's paying for the lease. I suspect that the employer is paying for the lease and deducting the cost from the OP's wages.

Which is not the same thing. He'll be taxed on the scale charge - which may bear no relation to his new, improved, reduced salary.

Not sure why the OP is complaining about getting less money in his pay packet. He's getting a free car as well, isn't he ? Only he can decide whether it's a good deal.

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Replying to ngaccounts:
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By Wanderer
19th Sep 2020 04:36

ngaccounts wrote:

If you're paying the full cost of the vehicle (by way of an equivalent deduction in salary i.e salary sacrifice) then there is no BIK. Ask your employer what they mean by this. As already mentioned, there is no BIK tax, you effectively end up paying more income tax through an adjustment in your tax code, but I cannot see why that would apply here.

Really? Not my understanding at all!
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By Anonymous.
18th Sep 2020 17:58

Wasn't there an almost identical question in the last couple of weeks or so? I suspect that it might be relevant if the OP were to search.

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By whitevanman
20th Sep 2020 11:19

As usual I come very late (no sniggering at the back) to this thread.
What worries me is that someone could enter into financial arrangements without apparently understanding what they are actually doing.
Let me start the analysis. What is a salary sacrifice? You agree to a change in your contractual terms which reduces your earnings in exchange for something else. So, you agree that, going forward your salary will be reduced by £577 per month. The net cost to you, after taking account of reduced tax etc is £350 pm. You no longer earn £38,600 you have agreed a £7,000 (ish) reduction.
What do you get in exchange?
Answer, a car. You don't pay for it, your employer does. That is why there is a BIK. The tax on that is calculated as £x. Usually, £350 plus £x is slightly less than what it would cost you personally to lease a car and pay the appropriate costs (tax, insurance, servicing etc) and you are no worse off (possibly a couple of pounds up). The employer usually does rather better in terms of reduced NIC contributions.
If you think you can get the car (plus tax etc) for less than £450 pm (on your figures) then the scheme may not be for you.
But please, read the documents, understand what you are getting into and if you don't understand, go to someone who does (and who is advising you, not your employer and is not trying to sell the scheme to you).
You may have to pay for the advice but it could save you an awful lot in the long run.

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