Employer BIK rates

[OneDs]

I need some help, I am trying to cost out the impact to Organisation if I decide to give a taxable benefit to an employee and then pay a proportion of the tax & ni on that benefit for them as well.

Basically I need to take into account new guidelines from the HRMC on the Cycle to Work Scheme and make it at least as beneficial to Employees as the old scheme which charged a 5% + VAT as a FMV after 12mths

I have worked out that the Taxable benefit will = (FMV + VAT)* (NI & Inc Tax %)

Higher Rate tax payer = 12% @ New 25% FMV after 12mths if the bike was more than £500
Higher Rate tax payer = 9% @ New 18% FMV after 12mths if the bike was less than £500
Lower Rate tax payer = 6% @ New 25% FMV after 12mths if the bike was more than £500
Lower Rate tax payer = 4% @ New 18% FMV after 12mths if the bike was less than £500

So in theory if the ER pays 50% towards the the BIK tax then nearly everyone will get a better deal, The higher raters will have saved considerably more during the salary sacrifice period anyway so not too worried about a % here or there for them.

I just need to cost out what that will means from our exposure. We are introducing a new Payroll system and my payroll person is testing for the whole week and not contactable at the moment so any help appreciated.

[Eric Mc]

I'm not going to do the sums for you but don't forget that some BIKs will also attract an Employer's National Insirance charge too.

[OneDs]

Thanks for that I'll bear it in mind, I don't want to take up your time Eric but do you know a direct link to find the necessary information, it seems like trying to find a needle in a haystack, plenty of BIK information but I can't find anything specifically relating to Employers paying the taxable benefit on the employees behalf.

The only way I have of calculating it at the moment is to use a infinite loop which taxes the tax which the employer stumps up but I know it doesn't work like that as there comes a point when the figures are just meaningless.

Edited by OneDs on Thursday 18th November 15:38

[Eric Mc]

If you pay ANYTHING (with siome specific exemptions) on behalf of an employee, then you are providing that employee with a taxable benefit and he will be subject to BIK tax on the value of that benefit.

If you pay someone's tax for them, then that BIK will be based on the cash equivalent paid on behalf of the employee.

[LC23]

OneDs said:

Thanks for that I'll bear it in mind, I don't want to take up your time Eric but do you know a direct link to find the necessary information, it seems like trying to find a needle in a haystack, plenty of BIK information but I can't find anything specifically relating to Employers paying the taxable benefit on the employees behalf.

The only way I have of calculating it at the moment is to use a infinite loop which taxes the tax which the employer stumps up but I know it doesn't work like that as there comes a point when the figures are just meaningless.

Edited by OneDs on Thursday 18th November 15:38

I think this is what you are trying to do -

Eg, benefit is £500

If higher rate taxpayer then tax on this = £500 x 40% = £200

This then needs to be grossed up at 41% (as there is also Class 1 NIC on this) -

£200 x 41/59 = £138.98

Total gross to put through payroll = £338.98

Employer Class 1 NIC = £338.98 x 12.8% = £43.39

Class 1A NIC on BIK = £500 x 12.8% = £64

Does this answer your question?

[OneDs]

Yep, many thanks, I just didn't realise how you went about grossing it up for the employer to pay the tax on the employees behalf.

Edited by OneDs on Thursday 18th November 20:59