Tax codes, bonuses & company car

ceeforcat

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?

It is not and three people on this one thread have now said the same thing. If your car benefit takes you £1 into the higher rate threshold, you will pay 40% tax on exactly £1 of your taxable income - no more and no less.

zygurat789

Salary.....30000................35000
BIK.........10000.................15000
Total......40000..................50000
Less PA.....7475..................7475
Taxable....32525................42525
Taxed at 20%..32525..........35000
Taxed at 40%.....................7525

mrginge

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?

Just to follow this up...

my first thought was that this example was not correct, but this *appeared* to be what has happened to my tax code for next year. Essentially my car and fuel benefit has exactly doubled from 6500 to 13000.
so i was starting to doubt the logic...

Spoke to the tax office today, and surprise surprise, my employer actually had me down as running two cars! I swapped car in november and then my employer switched my details from having 1x old car into having 2x new car.
the tax office then received these incorrect details and worked out the resulting mess. all resolved now, my 2012/13 tax code is back at exactly the same as it is now.

thanks to ceeforcat & Clapton for explaining.

Mikeyorks

Pleased you came back and explained.

When it's not HMRCs fault ....... it rarely gets recorded!