Tax codes, bonuses & company car

mrginge

Hello.

Couple of questions as i am unsure about the implications of a future bonus on my tax bill / code

I have a company car which this year means my tax code is approx 1100. I will also earn a basic salary of just under £35000. This means i am *currently* paying tax at the basic rate.
However, i am expecting a pre tax bonus of maybe £6000 in march which will take me into the higher rate.

I believe that my employer should adjust my tax payable accordingly in my march pay (i.e effectively deduct 40% on this bonus)
Is this correct? or will they continue to take 20% and expect me / hmrc to deal with any underpayment?

secondly, i believe that the p11d value on my car remains the same regardless of my marginal tax rate, so my tax code will still be correct even though i am now paying tax at the higher rate?

Finally, am i likely to have to go through self assessment next year? If i am, how do i know about it? I assume that hmrc tell you?

I'm just trying to get my head round whether or not i should expect a stonking tax bill in about 9 months time....

ceeforcat

The PAYE system will collect the full amount of tax due on this bonus in your March payslip. You say that your 'basic' salary is £35000 - any contributions to a pension scheme?

Based on what you have said, I see no reason why you should get a notice to file a Self assessment return next year.

mrginge

Thanks,

i'd kind of thought that would be the case, but was beginning to doubt it.

as far as pension contributions, yes i do contribute, forgotten about that. As i understand it my pension provider claims relief at basic rate and any additional i would reclaim from hmrc.

mrginge

Well, funnily enough i have received a coding notice today which has dropped my tax code for next year to k626. All due to my car/fuel beneift doubling. So they obviously see me in the 40% banding next year.

now i have the problem that this bonus will push me into 40% for THIS year. which means i guess that my current tax code will be completely wrong and i will have a huge underpayment.

can someone check my logic on this...

20% < 35000
40% >= 35000

if i earn 34999 this year, my car tax benefit is calculated as 5000 (@20%)
if i earn 35001 next year, my car tax benefit is calculated as 10000 (@40%)

that seems somewhat illogical to me but it is what appears to be the case?

ceeforcat

The 'Revenue' do not see you as anything. Yo have to regard the benefit in kind exactly the same way as any additional income. K626 suggests that you have benefits of around 14000. Can you give us a breakdown of your code number. Also, as i asked before, your basic salary is 35000. What is your taxable salary after pension contributions?Can you give us a breakdown of a recent payslip?

getmore4less

One other issue with hiiting 40% on taxable income it can effect investment income and HMRC might want a closer look.

CLAPTON

mrginge wrote: »

can someone check my logic on this...

20% < 35000
40% >= 35000

if i earn 34999 this year, my car tax benefit is calculated as 5000 (@20%)
if i earn 35001 next year, my car tax benefit is calculated as 10000 (@40%)

that seems somewhat illogical to me but it is what appears to be the case?

no, on your example if you earn 34,999 you pay 20% on only £1 and the rest is at 40%

if you earn 35001 then you pay 40% tax on all the money

so the difference is on 20% of £1 i.e 20 pence

the essential point is you pay 40 % on the amount OVER the 20% band which is why earning over 40% isn't a problem (until the children allowance changes become law)

Mikeyorks

Bearing in mind that the > £35k etc is the taxable band (which the OP seems unsure of?) So is only after the personal allowance is taken into account.

And - even there - some confusion? As the first post indicates the Code is 1100. Which is improbable .... so I assume that's the remaining PA after £6375 BIK taken into account. Which - in turn calls into question the rationale for the significant 'K' Code for the coming year.

As you so fondly say 'Tax is all about detail'! And that appears to be in short supply at the moment.

grant27

mrginge wrote: »

Well, funnily enough i have received a coding notice today which has dropped my tax code for next year to k626. All due to my car/fuel beneift doubling. So they obviously see me in the 40% banding next year.

now i have the problem that this bonus will push me into 40% for THIS year. which means i guess that my current tax code will be completely wrong and i will have a huge underpayment.

can someone check my logic on this...

20% < 35000
40% >= 35000

if i earn 34999 this year, my car tax benefit is calculated as 5000 (@20%)
if i earn 35001 next year, my car tax benefit is calculated as 10000 (@40%)

that seems somewhat illogical to me but it is what appears to be the case?

CLAPTON wrote: »

no, on your example if you earn 34,999 you pay 20% on only £1 and the rest is at 40%

if you earn 35001 then you pay 40% tax on all the money

so the difference is on 20% of £1 i.e 20 pence

the essential point is you pay 40 % on the amount OVER the 20% band which is why earning over 40% isn't a problem (until the children allowance changes become law)

I'm in the similar boat to mrgringe, and Clapton your reply doesn't answer the question.

The question is about company car tax benefit, not salary tax.

I know that if I earn over the threshold, then HMRC tax me at 40% of the amount over say £35k, so a nominal amount.

But the way I read the rules, if you even 1p over the threshold in taxable income, then your entire company car tax benefit is taxed at 40%. Thus the car benefit payment doubles (in my case £77/mth at 20% becomes £154/mth at 40%) for going 1p over the threshold. Surely this isn't correct is it?

If so, I'm considering asking my employer to reduce any salary increase this year, as I could end up with say a 3% increase which takes me only a few pounds over the threshold, which ultimately makes me much worse off.

getmore4less

AIUI

The car taxable amount assesed gets added to the salary, indirectly by reducing the tax free allowance, so it is actualy taxed in the salary not seperatealy.

THis means it gets taxed coorectly iif it is the car allowance that takes you over the theshold where some will be at 20% and some at 40%.

CLAPTON

grant27 wrote: »

I'm in the similar boat to mrgringe, and Clapton your reply doesn't answer the question.

The question is about company car tax benefit, not salary tax.

I know that if I earn over the threshold, then HMRC tax me at 40% of the amount over say £35k, so a nominal amount.

But the way I read the rules, if you even 1p over the threshold in taxable income, then your entire company car tax benefit is taxed at 40%. Thus the car benefit payment doubles (in my case £77/mth at 20% becomes £154/mth at 40%) for going 1p over the threshold. Surely this isn't correct is it?

If so, I'm considering asking my employer to reduce any salary increase this year, as I could end up with say a 3% increase which takes me only a few pounds over the threshold, which ultimately makes me much worse off.

how do you know that?
you read the rules completely incorrectly
benefits in kind (e.g. cars, health insurance etc) and taxed exactly like an increase in salary

if you wish to post up your figures then we can check them for you

and you would be mad to ask your employer to give you a lower salary (unless the child allowance rules change the situaion)