Tax Free Allowances

Cybernezz

jennifernil wrote: »

Hmm, I am struggling with your figures, though I can read them OK.

First, tax basic rate is 20%, so you need to correct that.

As I see it.....if you take the company car.....

you have salary plus car benefit plus fuel benefit minus pension contributions....

work the tax and therefore nett salary on that

then you may lose your child benefit, but there seems to be a possibility of some movement on that for sole earners (news today)

if you don't take the car......

you have salary plus car allowance minus pension contributions.....work the tax on that

then you get 15ppm from employer to add on, that's £4500 tax free, and you get tax relief on the £5000 at your marginal rate of20% or 40%, so you save either £1000 or £2000 in tax, or somewhere in between, depending on where it leaves you after extending you tax free allowance

but.....

you have to buy the car, and insure it, tax it, service it, pay for new tyres,brakes etc etc, and depreciation.

and you have to budget for changing the car every so often

and of course you have to pay for all that fuel, and your private fuel which presumably your employer covers at present via the fuel card.

these are significant costs, so you do need to put figures on those to get the true picture

Hi Jennifernil,

Strangely - thinking about it I have no idea why I have put 22% on there... It maybe something to do with the actual car side of it - or something that I've read somewhere.


Anyway - Yes you are right in terms of conparing apples with apples. Essentially with the sheet - I have a second sheet behind those workings that essentially takes both scenarios and deducts one from the other so there is an incremental cash figure.

That figure is essentially £1,083 at the moment - leaving exactly that to buy/run/fuel a car.

I have made some assumptions, £300p.m for a loan on a £12,000 car. Tyres @ £700 per year, Tax/MOT/servicing - all in for £525pm. £6,300 each year.

With those numbers I would be +£400 better off each month (to be used against fuel/emergancies etc).


I think it all resides on whether or not HMRC apply the £5,000 into the allowance - dropping the amount that is paid at 40% - if that makes sense?

CLAPTON

leaving aside the matter of child allowances as the rules haven't been spelt out yet;
the total tax you pay won't be affected by whether they change your taxcode or not: they will work out the tax the same although one way you will actually have to claim back after year end.

Cybernezz

CLAPTON wrote: »

leaving aside the matter of child allowances as the rules haven't been spelt out yet;
the total tax you pay won't be affected by whether they change your taxcode or not: they will work out the tax the same although one way you will actually have to claim back after year end.

Hi Clapton,

Is that right - ref the Tax code?

I read that the system works by deducting your allowance off of your gross - then any earnings over £35,001 are taxed at the higher %.
I.e.
Salary: £44,000
Allowance: £7,475
Taxable salary: £36,525
> £1,525 @ 40% (£610 tax)
> 35,000 @ 20% (£7000 tax)

Total Tax: £7610
Net Earnings (before NI deductions): £36,400.


Surely if it is bottom up, then any additional allowance helps with the bracket?
i.e

Salary: £44,000
Allowance: £12,475 (basic +£5k fuel)
Taxable salary: £31,525
> £0 @ 40%
> 31,525 @ 20% (£6,305 tax)

Total Tax: £6305
Net Earnings (before NI deductions): £37,695.




What do you think of that?

CLAPTON

in your first example HMRC will do

salary 44,000
less expenses 5,000
so adjusted pay = 39,000
less 7475 allowance
= 31,525
so tax at @20% = 6305

jennifernil

Whether you reclaim, or have your code adjusted, the result will be exactly the same for any one year.

I think you would struggle to get them to put your fuel expenses into your code in the first year, but you could easily do a self assessment and reclaim. They might then put all or at least some into your code number the following year so your PAYE was pretty much correct.

I would suggest you still do a SA every year as the PAYE is unlikely to be 100% correct.

You need to tick the box for getting a refund cheque for the first year, otherwise they will try to refund you via your Code the following year.

OH had mileage payments and expenses and I always liked to keep each year separate, makes it much easier to check that each year's tax is correct.

No idea how they will work the child benefit claw back if it goes ahead, that is the unknown factor.

Would also suggest you could look at increasing your pension contributions, 3% contribution is low........unless your employer is contributing a very generous amount, or you have a final salary scheme.

chrismac1

It looks as if the Budget in March might row back a bit from the child benefit thing. Certainly there appears to be a difference of views between number 10 and number 11. Also, if you are someone on £45k per year and the rule is "child benefit is lost if you are a higher rate taxpayer" then you just pay £3k into a pension fund and hey presto! no higher rate tax and hence you get child benefit.

Like the VAT threshhold, any breakpoint which imposes a marginal rate of tax of over 500% is pretty dumb. Say you earn £42k and are in line for a £700 pay rise, the sensible thing is to say "No thanks".

jennifernil

OH always took the car allowance and then he got the full HMRC mileage rates paid by his employer too, so that worked well for him.

However for us the money was not the main factor, we just preferred to be able to choose our own car, especially as we needed one that could also tow our caravan.

But he never did the amount of mileage you are talking about, 30k miles per annum will wear out a car very quickly!

Cybernezz

jennifernil wrote: »

OH always took the car allowance and then he got the full HMRC mileage rates paid by his employer too, so that worked well for him.

However for us the money was not the main factor, we just preferred to be able to choose our own car, especially as we needed one that could also tow our caravan.

But he never did the amount of mileage you are talking about, 30k miles per annum will wear out a car very quickly!

Hey Jennifernil,


3% is low - but there are a number of reasons why I have it set there and why I'm considering opting completely out.

The company currently doubles my contribution and adds it to my figure.
Me - 3%
Company - 6%
Total 9%.



I really appreciate everyones help so far.
I'm now thinking of running another couple of scenarios through the sheet that I have made to find a best balance on the pension and tax.

I'd be opting out because of the choice of cars too
The choices are really poor.... really poor.
I considered getting a 3L diesel mercedes - 40mpg / assuming costs of .19p per mile in diesel - (.19 x 30,000 = £5,700)
Total given back from company (£4,500) + HMRC (£5,000)
looks attractive to me!!

Cybernezz

CLAPTON wrote: »

in your first example HMRC will do

salary 44,000
[STRIKE]less expenses 5,000[/STRIKE]
so adjusted pay = 39,000
less 7475 allowance
= 31,525
so tax at @20% = 6305

Hey Clapton,

In my first example I was assuming no expenses and comparing receiving expenses with not receiving i.e. receiving expenses brought the payments into upper tax to nil - does that make sense?

Cybernezz

chrismac1 wrote: »

It looks as if the Budget in March might row back a bit from the child benefit thing. Certainly there appears to be a difference of views between number 10 and number 11. Also, if you are someone on £45k per year and the rule is "child benefit is lost if you are a higher rate taxpayer" then you just pay £3k into a pension fund and hey presto! no higher rate tax and hence you get child benefit.

Like the VAT threshhold, any breakpoint which imposes a marginal rate of tax of over 500% is pretty dumb. Say you earn £42k and are in line for a £700 pay rise, the sensible thing is to say "No thanks".

Hey Chrismac,


For me - the trouble is there is the option to receive a bonus each year upto 15% of my salary.
Naturally everyone want to receive max-bonus, but very rarely get's it.
Trouble is as I say - in order to avoid the cut off etc - you would have to also increase pension payments enough that offset your bonus too - by that point, you cant afford to live


I love tax.:mad: