Green lease deal at work and BIK

[Didigotoofar]

Could someone explain BIK to me - I have looked at the leaflets but still am none the wiser! I have had a green lease deal for 2 years but feel my tax bills are enormous! A colleague said he used to take the lease deals to help with his tax. I did get a nice car to use but it’s not as if I own it!

I got a Volvo xc90 over 4 years. Obviously can’t afford the residual fee when I would have the option to own it. I pay 1250 pcm in salary sacrifice and the I also seem to pay about 850 in BIK to the tax man. Does this sound right?

There are two elements to the "deal" - the salary sacrifice element and the BIK element.

A BIK is something that your employer pays on your behalf and is looked at as "additional pay". This is for things like cars but also private medical insurance. If, for example, your employer paid £100 a month in private healthcare, you'd be taxed on the basis of "earning" an extra £100 a month.

A salary sacrifice allows you to pay for something using your pre-tax salary. In your case £1,250 a month comes out of your gross pay, meaning you're not paying income tax or NI on this. If you were to lease a car yourself without the scheme, you'd be leasing it out of net pay, after tax, not before.

So, while you benefit from not paying income tax and NI on the amount of salary you're sacrificing, your employer still needs to report your company car as a benefit in kind.

This is calculated based on the list price of the car and the appropriate BIK %. If your XC90 is a fully electric car, this is currently 2%, but will be increasing by 1% per year over the next couple of years.

If, for example, therefore, your car has a list price of £60,000, you'll get an annual BIK of £60,000 x 2% = £1,200. You'd therefore be paying tax (let's assume you're a 40% taxpayer) of £480 per year = £40 per month.

This is a good summary - https://www.carwow.co.uk/guides/buying/electric-car-salary-sacrifice#gref

The example they use is someone leasing a Tesla for £550 a month.

If you are a higher rate tax payer, that £550 of earnings would normally be taxed at £220, leaving you with £330. By sacrificing £550 of salary you're effectively paying £330 for a £550 car. (NI is an extra saving)

You would pay tax on the BIK of £45,990 (list price) x 2% = £920 per year or £76.65 per month x 40% = £30.66.

In summary:

If you are sacrificing £1,250 a month from your pay, but are paying £850 "tax" on the BIK per month, I think it looks way off.

Using my example of a £60k list price above, you should be down your £1,250 gross salary per month and £40 a month in tax (based on a £100 BIK per month).

I'd recommend speaking with your payroll department or HMRC.

What's your tax code on your payslip?

https://comcar.co.uk/taxtools/salarysacrifice/

Just looked a bit further.

Am I right in thinking your car is a hybrid, rather than fully electric? If so, the figures may be right - the real savings come with fully electric cars. Hybrids are still taxed quite heavily on BIKs.

Click on the above website to run the figures through an actual calculator.

Yes it’s a hybrid. When I asked payroll they asked me if my P11 was correct! So not having much luck with them!

I think the issue is that a hybrid Volvo XC90 must be around £80k, and will probably attract a BIK% of either 8% or 12%. If it's the latter I can see how it ends up at the £800 a month BIK. So then you end up paying 45% of either £6,400 or £9,600. But then, salary sacrifice only really makes sense for full EVs...as posted above, you are then only paying 2% BIK. So for an £80k car that's only £133 a month (at whatever you marginal tax rate is)

Aren't they the ones that prepared the P11D??

I would suggest checking the list price, fuel type and % they've applied is correct.

HMRC has a calculator you can use here - https://www.tax.service.gov.uk/guidance/work-out-company-car-and-fuel-benefit/start/tax-year

The website I provided earlier (comcar) allows you to tailor it to the specific car.

The fact that the car has a very low electric only range (44 miles) means the tax goes up.

In no way, however, should you be losing £1,250 from your gross salary AND £850 in tax on a BIK also.

The BIK itself should be around £484 a month, and you're taxed on that.