Sept / Dec 15 Question 4

Hi.

If anyone has done this question, ref Hyssop and Corin i wonder if you could help me to clarify the answer given please.

Option 2. Corin was given a payment for the use of driving his own car to work.
A reimbursement of 2,240 was given however its estimated that it will come to 2,820 by the end of the period.

This is a taxable benefit,and as such it is subject to 40% tax (he is the higher earner) and 2% NI.

Already paid to Corin is 2,240 and Tax and NI is 941.00 DUE.
Pending payment then is the difference between est and actual payment (2,820-2,240=580).

If Corin is paid the additional 580 then this is also to be taxed at 42% = 244 DUE

Total tax and NI then is the 941 + 244 = 1,185

However the answer shows the 941 (as i have) but the answer then adds the variance figure of 580 onto the 941 due for the original reimbursement. Closing the calculation off as “total cost”.

What exactly is that total cost? It seems to me to be a mix of balancing figure plus tax and NI due. It doesnt say “income tax on benefit” so i am a little confused.

The question asked for the most cost effective scheme for Corin. To be paid a total of 2,820 will result in a tax and NI liability of 1,184 and not the 1,521 as given.

This then (according to my figures) shows that Corin is better off getting his mileage paid rather than the motorcycle as indicated in the answer.

What have i missed?