Company Car Tax Help Please

stevepil

Hi
Hope someone can help me, I am really panicing over a letter I have receved from HMRC.

I got issued a company car in January (13th) 2011 and was told the BIK tax was £32.87 per month and never any more than this, or company would cover it (have in writing)

I spoke with HMRC last week and advised of my company car as noted my tax code had not changed and was told the company were dealing with it. They thanked me and changed my code.

Today I receive the letter to advise my personal allownace has been reduced by £3029 for 2011 - 2012, which is £2474 for 2011 -2012 charge and backdated charge of £555 for Jan - Apr '11.

My first concern is this is 2500 charge for 2011 and I was told it would be £32.87 per month which is £394 per year.

HMRC are telling me its accurate and local agreements with company are with them, my company are telling me its set up correct and I will only be debited £32.87 via my tax in April.

I am worried I am worse off by over £173 per month and can not afford this, the company say it is 20% on the reduced tax code which equates to the £32.87 but that does not even add up.

I am sorry for the long note and really hope someone can help me, I am trying both HMRC and company and both are saying its right but can not risk having a chunk taken out my bank.

If anyone can provide any form of breakdown as to how it works I would appreciate it, as sometimes when I work out my salary, minus my allowance and tax the rest at 20% it comes in I am earning more money so know I am doing something wrong

Any help for a worried person would be really appreciated

Thank you

dori2o

The reduction in the code of 2474 is not the amount of tax you pay, it is the value of the benefit you receive, thereforeyou will pay tax ON THIS AMOUNT.

So tax at 20% on 2474 is £494.80 per year or just over £41 per month.

This is the same with the reduction to collect underpaid tax. The 555 isn't the tax owed, it is the reduction to collect approx £111, or £9.25 per month.

Please tell us what your tax code is now, and what it will be changed to and a rough estimate of your income and we can tell you how much better/worse off you will be come 6 April.

stevepil

Thank you so much for the reply

My tax code was 753L and has changed to 450L from 6th April 2011, my salary is £30450.00

Many thanks

Ps) I am expecting a tax difference of £32 per month as this is what I was told it would cost, with a backdated charge of £90 spread over the year, but confirmation would be great

Thanks

dori2o

stevepil wrote: »

Thank you so much for the reply

My tax code was 753L and has changed to 450L from 6th April 2011, my salary is £30450.00

Many thanks

Ps) I am expecting a tax difference of £32 per month as this is what I was told it would cost, with a backdated charge of £90 spread over the year, but confirmation would be great

Thanks

The difference is £50.50 per month.

The difference between the codes is £3030, multiply this by 0.2 and this gives the extra tax due for the year £606. divide by 12, and you get £50.50 per month.

stevepil

Thanks for your help, my company have mailed me again tonight, just saw it and they have said same thing so even though I was told it be £32 and knew backdated payment of £9 = £41 it makes me feel better knowing its only £10 roughly out rather than a few hundred pound

Can I ask why does the personal allowance be dropped so much for this amt, why dont they just drop the personal allowance for what you owe, ie if it was 7000 and I owe £300, drop to £6700 does it not work out the same? or does it not work like this.

Does the BIK also go up each year do you know as I was told it be same for 4 years of contract, now not sure whether to believe this or not.

Thanks again

dori2o

stevepil wrote: »

Thanks for your help, my company have mailed me again tonight, just saw it and they have said same thing so even though I was told it be £32 and knew backdated payment of £9 = £41 it makes me feel better knowing its only £10 roughly out rather than a few hundred pound

Can I ask why does the personal allowance be dropped so much for this amt, why dont they just drop the personal allowance for what you owe, ie if it was 7000 and I owe £300, drop to £6700 does it not work out the same? or does it not work like this.

Does the BIK also go up each year do you know as I was told it be same for 4 years of contract, now not sure whether to believe this or not.

Thanks again

In very basic terms the tax code tells your employers payroll system how much money per payment is to be given tax free and then tax is charged after this through the rate bands.

by reducing the tax code by 3030 allowances, it is making £3030 more available to be taxed through out the year.

stevepil

Ok thanks for explaining (wish you was in my payroll at work, haha)
Thanks again
Dont suppose you know re the BIK moving forward?

stevepil

Just to add to my question, my payroll have sorted today thankfully ! and confirmed the reason for difference between the £41 and £34 I was quoted is the HMRC have not taken my personal trade up payment I made every month of £35, this will lower the tax element apparently and cause my tax code to go up slightly...

The thing I still dont understand (and reading online confuses me more) is why the tax code is changed by £2500 for a £400 bill, when you read on line it says if you have a benefit in kind the allowance is reduced by alleged amt, ie if you had pers allowance of 6000 and a BIK of 500, the pers allowance would be reduced to 5500, not to the amount it would need to reduce to, to pay £500 in tax.

That bit I really dont understand, why they havent changed my personal allowance from 7100 to 6700, and they have reduced by 2500. I just hope it all goes well on April payroll - I will be nervously waiting my pay slip.

Thanks

jennifernil

If you have a benefit like a car, your allowance is reduced to collect the correct tax on it.

Your car benefit is worth £2474 in 2011/12, so your code is reduced by that amount (plus your backdating) to collect tax on £2474, which is £494.80 @ 20% tax.

The BIK has a monetary value that you pay tax on, it is not the tax amount that you are due to pay. A £500 BIK would be taxed at £100.

Mikeyorks

stevepil wrote: »

That bit I really dont understand, why they havent changed my personal allowance from 7100 to 6700

Because ........ you pay tax - on your salary - at 20%. So your personal allowance gives you (the basic from 11-12) £7475 income - spread over the year - free of all those 20p in each £1. If you had no personal allowance you would pay an extra £7475 x 20% = £1495 over the year. You would not pay £7475 extra! Think about it - before we proceed?

Now the other side of the coin. You have a company car - which is a taxable benefit in kind. It's value in moneysworth terms - were you being paid it in salary - is £2474. If they paid you in money .... you would pay £2474 @ 20% = £494.80 in tax on that £2474. You would not pay £2474?

If you now invert that back to your Code .... this is why they deduct £2474 from your Code ..... in order to get back the extra £494.80 in tax! Say 'got it'!

stevepil

That really has helped
Thank you very much