Staff Mortgage BIK query

puzzled10

Hi, I have a query regarding the BIK (Benefit in Kind) payable on a staff mortgage and will try and keep this simple using round numbers not the actual figures
I am a 40% tax payer
I fully understand the tax due is 40% of the BIK
My issue is how Lloyds have worked out the BIK for the P11D and how then HMRC have taxed me:
Simple numbers (bear with me)
250k mortgage
£200k at staff rate of 0.5%
£50k at 5%
to work out BIK you take average amount owed for year (start+end/2). Lets just say £250k for ease here (taking into account the whole amount mortgage, not just the discounted part x 0.325 giving you £8125 (2016-17)
You then subtract the interest paid on the loan over the year to get you BIK, on which 40% is paid.
My dispute with Lloyds/HMRC is that whilst they are applying the 0.325 to the whole loan they are not taking into account the interest paid for both elements, only the discounted part, stating the BIK is £7125 when in fact I think they should also take into account the interest paid on the expensive part too!
So they have only used the £1000 interest for the year (the discounted element at 0.5%) and not taken into account the interest paid on the expensive element, when in fact we have paid £2500 (interest from expensive part) and the £1000 from the discounted part £3500 in total

I say:
£3500 interest paid in total, £8125-£3500 = giving a BIK of £4625 x 40% = £1850 tax
They say
£1000 in total, £8125-£1000 = giving a BIK of £7125 x 40% = £2850 tax

I cannot see how they can charge the interest on the whole loan not just the discounted part (they do this it is common knowledge) and then only take into account the interest paid on the discounted element and not the expensive part

Am I correct in my thinking?
Regards
Puzzled10

TrickyDicky101

I agree with you. What is your employer disclosing on your P11D in respect of these loans?

Thrugelmir

Can be better to take the non staff option sometimes. The rules concerning mortgage BIK been in place for many years. Seems as if you lose out rather than benefit in this low interest rate environment.

puzzled10

Hi TrickyDick
The P11D provided by Lloyds states the BIK at £7125 having not taken into account the interest paid on the expensive part of the mortgage. HMRC say they only show what the info supplied by employer and Lloyds say speak to HMRC...been sent from pillar to post and can't get a straight answer from anyone, meanwhile paying what I consider is the wrong amount of Tax

Trying_to_be_good

HMRC will only take what's written on the P11D. You need Lloyds to amend the figures they're submitting, which means them agreeing your methodology (which looks spot on to me) - it's their error.