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Government to find 'better way' to calculate BIK tax following appeal

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The government has announced it will find a 'better way' to calculate employees' benefit in kind (BIK) tax following an appeal made by Matt Hodgson, automotive specialist tax partner at PKF Cooper Parry.

Hodgson submitted the appeal back in September 2015, claiming he did so on behalf of the 'UK's franchised motor retail industry.'

The appeal led to a meeting with HMRC's head of employee compliance and a subsequent agreement of legislative basis for a dealership using an 'aggregated actual' calculation.

Cars driving through a tunnelHMRC's company car averaging scheme is used across the motor industry to determine employees' annual BIK on their company car. Though the scheme was introduced in 2009, it is yet to undergo thorough testing.

Speaking to AM-online, Hodgson commented that the last two years have seen "real interest from HMRC on dealership's operation of the car averaging scheme resulting in significant inconsistencies being identified upon enquiry, and unexpected tax liabilities being borne by the employer."

After assessing a number of car averaging schemes used by dealerships across the UK, Hodgson uncovered a "lack of consistency in approach to operating a car averaging system and inadequate evidential support to show that employees are staying within their band allocation."

Though the tax legislation enabling an 'aggregated actual' basis of calculation to be used has been around for many years, Hodgson explained that it is only recently that dealers have been able to monitor vehicle and fuel BIK to such an accurate degree, thanks to technological developments in IT solutions.

Hodgson concluded that HRMC's feedback was 'extremely favourable' and ties in well with its goal of digitising all tax compliance reporting, including P11D reporting.

"An aggregated actual calculation of an employee's vehicle and fuel BIK covers every minute of benefit usage and will likely be the sole method HMRC turn to in due course due to the simplicity of the calculation and the accuracy of supporting records."

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