Benefits Taxed at Source + Student Loan Repayment

village_life

Hi

I have a company car with my job, and the 'benefit' is "taxed at source" - as I understand it, the "benefit in kind" of the car (£3184) is added to my core salary (for arguments sake £20,000) and then PAYE taken on the whole of it...

so....

£20,000 + £3,184 = £23,184 / 12 (Months) = £1932 Gross Per month.

is my student loan taken on this amount, or my core salary alone (i.e. £1666 [20,000/12]) - thinking about it it'd make sense for them to take it from the higher figure as they cant distinguish between the 'bit' of the total salary thats the car benefit....

the more student loan I pay off per month the better as its due to be paid off by december i've calculated :T , which will free up about £200 per month for me - its like another pay rise :beer:

o_t_e

Hi Village life - can you confirm that your monthly wage slip shows gross pay of approximately £1932?

The reason I ask is that the calculation you describe is not normally how a car benefit is dealt with; usually either you or the employer would inform the inland revenue of the car benefit you were receiving and they would amend your tax code to collect the tax due on the value of the car benefit from your 20k basic wage. In that situation the student loan company would base their calculations on the 20k not 23k and if your student loans are the type collected directly through your wages (ie post 1998) then the inland revenue would consider the student loan payments due to be 9% of 5K (20K. - the threshold ammnt of 15k)

If in fact the amount due is based on 20K not 23K then unfortunately you can't make additional payments directly through your wages but you can make voluntary payments direct to the student loan company - hope this helps.

Bennifred

Wouldn't the amount payable to the Student Loan Co. be 9% of £5000 in the above example? I understood it to be 9% of salary above £15000 (i.e. not 9% of the whole lot, just the part above £15000).

o_t_e

Hi - you'e quite right and I've amended my post accordingly - shows what happens when you're trying to do three things at once! For the record the guidance the HMRC give to their own staff is that the deductions are,

-calculated at a rate of 9% of earnings over the pay period threshold

-deducted from gross pay alongside tax and NIC

- non cumulative

-rounded down to the nearest pound

-Benefits in Kind are not taken into account

The latter point addresses Village Life's original question - his car benefit shouldn't be taken into account when the calculation of payments is made.

village_life

hi

my salary isnt £20k i used that as an example - however, my gross salary is 1/12 exactly of my total annual salary.

the bit that confuses me is the "taxed at source" bit - as i understand it, the benefit in kind of my car is added to my gross monthly salary and then PAYE taken on the whole of it - different to the normal model of tax collection, but the way my company works in agreement with IR

o_t_e

Hi Village life - it would be normal for a benefit in kind to be 'taxed at source' and for that benefit to be effectively added to there income. The method by which a car benefit is normally added to your income is by reducing your personnal allowance, so to take the next tax year for example, if your personal allowance is 5035 (ie you can earn £5035 a year before paying tax or £420 a month) and your car benefit is £3184, the inland revenue would reduce your personal allowance to (5035-3184=) 1851 which equates to a tax code of 185L. In this way, the proportion of your income that is taxable increases by £3184, so as well as collecting the tax on your original salary, they are also collecting tax on the car benefit each month.

If your employer operated as above your payroll would supply the car benefit information to the inland revenue on a form called a P11D. Perhaps you could speak to them and see whether that is the case?

It's worth investigating this further as it is not uncommon for the inland revenue not to be informed immediately about a car benefit which can result in several months of underpaid tax.

village_life

hi yes the P11D is used, although ive not seen it yet...

difficulty is i joined the company in November, never had a car benefit before, nor had a breached the 40% tax boundary until i moved jobs - so this tax year has been a bit of a nightmare to get up to speed with what happens etc.

perhaps next year my code will change -will just wait and see..........

o_t_e

Hi Village Life - to be honest car benefits are never easy to get your head round so I wouldn't beat yourself up about it.

The P11d would normally go direct to the inland revenue so if you haven't seen it that isn't necessarily out of order.

That said, if you tax code is still the standard 489L it means the inland revenue have yet to be informed about the compay car - It would mean that next tax year ie from the 6th April 2006 your tax code would need to be reduced by the full value of the company car for 2006-7 and the value of the car benefit apportioned from November 2005 to 5th April 2006 - just a rough guess but maybe about £1300.

I'd give the inland revenue a call just to see what information they hold about the car if anything.

village_life

agree with you apart from the final point - ive paid the tax on the car from this year (nov to april 06) as the taxable benefit was added to my gross pay (albeit in the background) and PAYE tax taken on it....

ive JUST breached the £32,400 40% tax bracket now (period 12), and put in my total gross salary here (which included the apportioned car benefit) and the figures stacked up.

so i'll assume all is fine unless i get a massive bill through the post........