Company car given back - why does it have to stay in my tax code?

Mushy_Peas

Hi guys

I had a company car in my tax code which was fine. I gave the car back (as no longer need to do the travelling as my job has changed) but the tax office says that they are unable to remove it completely from my code and that it has to be 'apportioned' and a figure has to stay in for the rest of the year. When I asked why this was, they couldnt seem to explain it. So if someone can explain to me why it cant just be removed as I was paying tax for the months I had it I would be grateful!!

trevormax

Because you have had the car for part of the tax year they need to code an amount out of your tax code to cover the tax that is due for the time you had the car.

For example, you had a company car for 6 months of the tax year and the full year amount to code out would have been £4,000. Upon being told you no longer have the car, HMRC would remove the £4,000 and code in £2,000 (£4,000 / 12 x 6).

If they just remove the entire amount coded out for the car this would not only result in you not paying tax on the company car for the remainder of the tax year, but also result in a repayment of any tax you have paid for the car already. You would then be getting a letter from Mr Taxman saying you owe him £xxx unpaid tax.

laurel7172

It's just how they do it. Tax codes are usually cumulative over the year (it keeps things tidy if you change/lose your job etc), so the figure for the benefit you've had needs to stay in there.

If your benefit for a whole year was (say) £1000, but you've now only had it for six months, the figure in your tax code could be reduced to £500. The plus side is that this would generate an immediate repayment in your next paycheque (because deductions up to now have been made assuming a higher rate of benefit in kind) and you'll pay tax at the reduced rate for the rest of the year.

In theory, you could be put on a week1/month1 code with no car benefit in it, but it's untidy and it isn't self correcting and it's usually only used as a temporary measure.

Mushy_Peas

Thaks for the replies. It makes more sense that what they were waffling about!!!