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  • FIRST POST
    • username12345678
    • By username12345678 15th Jun 17, 9:18 PM
    • 66Posts
    • 23Thanks
    username12345678
    P11D v Payroll
    • #1
    • 15th Jun 17, 9:18 PM
    P11D v Payroll 15th Jun 17 at 9:18 PM
    Hi All,


    I have a salary sacrifice lease car that has been paid for in the 2016/17 TY via P11D.


    HMRC are asking for a self-assessment because the BIK takes me over the £100,000 threshold.


    What I'm not understanding is why my tax code was lowered to 521T for 16/17 after I rang them on receiving the car and yet the BIK is being added to my salary to take me over the threshold for SA.


    Is my tax liability for the car not covered by the reduction in personal allowance?


    My company didn't go to payrolling the BIK for the first year it was available (16/17) instead using P11D but is starting from 06 Apr 17.


    Could this be where the confusion is arising?
Page 1
    • Dazed and confused
    • By Dazed and confused 15th Jun 17, 10:34 PM
    • 1,386 Posts
    • 568 Thanks
    Dazed and confused
    • #2
    • 15th Jun 17, 10:34 PM
    • #2
    • 15th Jun 17, 10:34 PM
    You have a fundamental misunderstanding of how tax works.

    In very simplistic terms (and ignoring any income not taken into account in your tax code) including the car benefit in your tax code means you paid some extra tax during the year.

    If you now calculate your actual tax position now the year has ended and ignore the car benefit you would get all the extra tax paid back

    If 2016/17 is the first year your income has breached the £100,000 limit it is likely you will have a (possibly significant) tax debt because your tax code probably included your full personal allowance but this is gradually removed if your income exceeds £100,000 (reduced to nil on a sliding scale, in 2016:17 by the time you get to £122,000 your personal allowance is £0).
    Last edited by Dazed and confused; 15-06-2017 at 10:39 PM.
    • username12345678
    • By username12345678 15th Jun 17, 11:15 PM
    • 66 Posts
    • 23 Thanks
    username12345678
    • #3
    • 15th Jun 17, 11:15 PM
    • #3
    • 15th Jun 17, 11:15 PM
    In very simplistic terms (and ignoring any income not taken into account in your tax code) including the car benefit in your tax code means you paid some extra tax during the year.
    .
    Originally posted by Dazed and confused
    The reduction HMRC made in my personal allowance down to 521 after I informed them of the lease BIK covers what part of my tax liability for the car? I'd assumed that the extra tax I paid on the lost personal allowance would equate to the BIK liability?? If it wasn't for the BIK what was the extra tax paid with the loss of personal allowance? Or wasn't there extra tax paid with the loss of personal allowance?

    If 2016/17 is the first year your income has breached the £100,000 limit it is likely you will have a (possibly significant) tax debt because your tax code probably included your full personal allowance but this is gradually removed if your income exceeds £100,000 (reduced to nil on a sliding scale, in 2016:17 by the time you get to £122,000 your personal allowance is £0).
    Originally posted by Dazed and confused
    Taxable for 16/17 was £99k with £4k BIK for the car.

    So my tax code of 521 probably included my full personal allowance when it shouldn't have done?

    My employer has stopped P11D and moved to payroll (Apr 17) so apparently this will raise my income by the amount of the BIK so it will be taxed automatically.

    Replay is much appreciated - even if I am more confused than before.
    • Dazed and confused
    • By Dazed and confused 16th Jun 17, 9:48 AM
    • 1,386 Posts
    • 568 Thanks
    Dazed and confused
    • #4
    • 16th Jun 17, 9:48 AM
    • #4
    • 16th Jun 17, 9:48 AM
    This is a simple example to show why you have to include the car benefit on your tax return. All figures kept very simple for demonstration purposes and actual car benefit is identical to the provisional amount which was included in the tax code.

    Tax code 500L (PA 11000 - Car benefit 6000)

    Salary £10000 - tax code 500L = employer taxes £5000
    Tax Deducted by employer = £1000 (£5000 x 20%)

    Tax return without car benefit
    Total income £10000
    -personal allowance £11000
    taxable income = £0
    tax payable = £0 so all tax paid during the year would be repaid and you could expect to be investigated by HMRC!)

    Tax return with car benefit
    Total income £16000
    -personal allowance £11000
    taxable income = £5000
    tax payable = £1000
    tax deducted during year = £1000 so no tax to pay and no refund due
    Last edited by Dazed and confused; 16-06-2017 at 9:52 AM.
    • username12345678
    • By username12345678 16th Jun 17, 10:07 AM
    • 66 Posts
    • 23 Thanks
    username12345678
    • #5
    • 16th Jun 17, 10:07 AM
    • #5
    • 16th Jun 17, 10:07 AM
    This is a simple example to show why you have to include the car benefit on your tax return. All figures kept very simple for demonstration purposes and actual car benefit is identical to the provisional amount which was included in the tax code.

    Tax code 500L (PA 11000 - Car benefit 6000)

    Salary £10000 - tax code 500L = employer taxes £5000
    Tax Deducted by employer = £1000 (£5000 x 20%)

    Tax return without car benefit
    Total income £10000
    -personal allowance £11000
    taxable income = £0
    tax payable = £0 so all tax paid during the year would be repaid and you could expect to be investigated by HMRC!)

    Tax return with car benefit
    Total income £16000
    -personal allowance £11000
    taxable income = £5000
    tax payable = £1000
    tax deducted during year = £1000 so no tax to pay and no refund due
    Originally posted by Dazed and confused
    I need to borrow your username.

    I guess my confusion comes from being told to inform HMRC of the car on day 1 of the lease so they could adjust the tax code straight away so i'd be paying the right amount of tax each month instead of a bill at the end of the year.

    It looked to my (dumb) eye that adding the BIK to my taxable would create another tax obligation when i'd already paid throughout the year.

    I confess I still don't get it despite your valiant efforts - thank you for trying!
    • Dazed and confused
    • By Dazed and confused 16th Jun 17, 11:06 AM
    • 1,386 Posts
    • 568 Thanks
    Dazed and confused
    • #6
    • 16th Jun 17, 11:06 AM
    • #6
    • 16th Jun 17, 11:06 AM
    I'm not sure how much simpler it can be made in all honesty.

    The examples in my previous post showed that,

    Including the car benefit on your tax return proves correct tax paid during the year as no refund is due and no extra tax needs to be paid

    Omitting car benefit from your tax return means tax deducted correctly during the year would be repaid to you (when it really shouldn't be)

    I'm not sure how else to demonstrate that the car benefit needs to be included on your tax return
    • username12345678
    • By username12345678 16th Jun 17, 11:51 AM
    • 66 Posts
    • 23 Thanks
    username12345678
    • #7
    • 16th Jun 17, 11:51 AM
    • #7
    • 16th Jun 17, 11:51 AM
    I'm not sure how much simpler it can be made in all honesty.

    The examples in my previous post showed that,

    Including the car benefit on your tax return proves correct tax paid during the year as no refund is due and no extra tax needs to be paid

    Omitting car benefit from your tax return means tax deducted correctly during the year would be repaid to you (when it really shouldn't be)

    I'm not sure how else to demonstrate that the car benefit needs to be included on your tax return
    Originally posted by Dazed and confused
    Light bulb may have just come on.

    Just because I enter the car benefit on to the SA it doesn't automatically follow there will be a taxable charge if HMRC can see from their records my tax code had been adjusted from the beginning of the tax year to take account of the BIK?
    • Dazed and confused
    • By Dazed and confused 16th Jun 17, 12:12 PM
    • 1,386 Posts
    • 568 Thanks
    Dazed and confused
    • #8
    • 16th Jun 17, 12:12 PM
    • #8
    • 16th Jun 17, 12:12 PM
    Sort of, tax codes are simply a method of collecting tax towards your actual tax liability which can only be established by, in your case, your tax return.

    You rarely enter much info from your tax code on your tax return, generally it will be from your P60 (actual taxable salary) and P11D (actual company benefits).

    In a perfect world your tax code would be accurate and the entries in your tax code would match the P11D but for a huge variety of reasons that doesn't always happen.

    You also show the tax deducted figure from your P60 on your tax return so if the correct tax code was used, you don't have any other income not taken into account in your tax code and your P11D company car benefit was the same as the amount included in your tax code then the tax paid during the year via PAYE will be pretty accurate.

    In your case we know from your earlier posts that your income is going to be at least £103,000 so you will lose £1,500 of your personal allowance because your income breached the £100k limit. As a 40% payer that would be tax owed of £600 however there could be lots of other variables which mean your actual self assessment tax bill is unlikely to be £600.

    You may have savings interest to pay tax on or might have contributed to a personal pension/sipp on which you could be due some extra tax relief.

    The best thing you can do is make a start on completing the tax return, you can save it as you go along and review the tax calculation before you submit it to HMRC to see that it makes sense.
    • username12345678
    • By username12345678 16th Jun 17, 12:16 PM
    • 66 Posts
    • 23 Thanks
    username12345678
    • #9
    • 16th Jun 17, 12:16 PM
    • #9
    • 16th Jun 17, 12:16 PM
    Thank you very much for taking the time to explain it all.
    • Dazed and confused
    • By Dazed and confused 16th Jun 17, 12:39 PM
    • 1,386 Posts
    • 568 Thanks
    Dazed and confused
    No problem, you might want to take a look at the Pensions, Annuities & Retirement Planning board as it is commonly perceived that private pension contributions are exceptionally tax efficient for someone with your level of income.

    Too late for last year now but if we use that as an example and assume your entire income is the £103,000 you have referred to then a payment from you into a sipp of £2400 would have the following effect,

    Pension fund has £3000 (basic rate tax relief added by sipp provider)
    You can pay £3000 more basic rate tax saving you £600 (£3000 more taxed at 20% instead of 40%) because the sipp payment increases your basic rate tax band
    You retain your full personal allowance and save another £600 (Google adjusted net income)

    End result is you have £3000 in your sipp which has only really cost you £1200 - effective tax relief rate of 60%.
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