Will My Promotion Make Me Financially Worse Off?

Chil-999

Hi All

I hope someone would kindly help?

I was earning £26,000PA and have recently been promoted, with a new income of £35,000PA and an addition of a Company Car, which I have never had one before and is valued at £18-20,000

I am concerned that there is a possibility my tax could double, and also the tax on the car is completely new to me.

I did try the HMRC website but that confused me even more.

Could some one please give an idea of where I will stand. I have a partner and two young children, so they are more important than promtions!!

shop-to-drop

Congratulations on the promotion. Don't panic I'm sure your tax won't double. You aren't even in high rate bracket. You will get a lot lower tax free personal allowance due to the car though.

How about speak to HR about what your tax code will be and then you will be able to work out how much you'll clear they may even be able to help with that too.

How exciting for you hope you enjoy the new role.

Any

Why would your tax double?

You will pay some tax on the car, use this http://www.comcar.co.uk/newcar/companycar/taxcalc/g1select.cfm to find out how much. You need more info then just the value of the car (mainly CO2) but this site has the info stored for each make/model.
Once HMRC is notified of your new car (do this or make sure the employer has done it ASAP), they will change your tax code and this tax will be projected into this - so there will be no surprise bill at the end of the year.

As for the payrise... that will get taxed the same way like the rest of your wages...

you can get your net pay at listentotaxman.com - input in your old wages, the new wages and see the difference. Don't forget that you will get some tax on the car as well though.. the other side will show you how much.

P.S.: however, don't panic. You will be better off then before.

Any

Just to clarify for your piece of mind and for the future...

Even if you did reach higher tax bracket - 40% which I am supposing is why you think your tax will double - only the amount by which you reach this bracket will get taxed 40%, the wages up to that limit will get still taxed 20%... (excluding your tax free allowance of course)

It doesn't work that once you reach the bracket suddenly everything gets taxed by the increased tax %.

Chil-999

Thank You for the feedback Guys that has really eased my mind. It sounds so simple now, but it wasn't at the time.

Thank You again!!

SilverSix

Any wrote: »

It doesn't work that once you reach the bracket suddenly everything gets taxed by the increased tax %.

A lot of people seem to think that that's the case for some reason! Defies all logic of a promotion in the first place. Pay rises would all have to be over 25/30% to be worthwhile if that was the case!

Congrats on the promotion. I'd do unspeakable things for a 35% payrise!

taxing

Any wrote: »

Why would your tax double?

Once HMRC is notified of your new car (do this or make sure the employer has done it ASAP), they will change your tax code and this tax will be projected into this - so there will be no surprise bill at the end of the year.


I would advise that you ring HMRC and tell them about the car as you are equally responsible with your employer for keeping HMRC advised of changes affecting your tax.

The P46(car) the employer needs to send in doesn't always get done - and when it has been sent in, then it doesn't always get to the employees tax record 'anytime soon': could take months and all the while you are storing up a tax underpayment.

Get the tax office phone number from the payroll or HR dept; better still ask to use the phone while they are there so they can help if you get stuck over some of the questions.

Tax is about taking responsibility for your own position:if you do that yoou will keep your head above the parapet.

Many congrats, by the way....enjoy!!

Regards.

MoneySavingUser

The taxable benefit on a car is:

List price * (appropriate % from the HMRC tables based on the CO2 emissions)

This value is then added to your employment income and taxed at 20% or 40% depending which bracket you are in by then

So let's assume the % applied is 20%

Car benefit would be

20000 * 20% = 4000

Total employment income is:
Salary 35000
Benefit in kind 4000
Total 39000
Less personal allowance 6475
Taxable income 32525
Tax due @ 20% = 6505 (most likely already deducted by PAYE)

If you have any savings/dividends you won't have any extra tax to pay as they are taxed at source (20% on savings + 10% tax credit on dividends) - but if you become a higher rate taxpayer you will have extra to pay on them (you can earn about 4875 more before you get into the higher band)

Also making pension contributions will also give relief
Occupational pension - taken off salary before PAYE tax calculated so automatic relief
Personal - you can extend your basic rate band by the gross amount of contributions