Benefit of getting a company car...

Gurj247

I'm in a situation where i am going to be negociating the t&c's of my contract and need some advise.

I am currently paying 20% tax but am getting close to the 40% bracket.

from my understanding the below is the latest figures for basic rate of tax.
Personal Allowance = £7475
Basic Rate Max = £35000
Grand Total = £42,475

Once over £42,475 i would be in the 40% bracket for tax.

my question is that if i was to get a company car what level of tax would i have to pay, 20% or 40% on the Benefit in Kind for the car.


Lets assume my salary is £42,470.
I then take a company car which in theory costs my commpany £385/month = £4620

Therfore my total package is worth £47,090, would this mean that i would pay 20% tax on the car up until my earning of £42,475 and the 40% for the rest of the year.

Or is it set that because my basic is less than 40% limit i would only pay 20% for the year benefit in kind tax

or is it set at the higher 40% bracket because my overall package would be greater than the £42,475

your help would be greatly appreciated as i am so confused over this matter.

richbeth

Hi,
the extra tax you pay is not directly related to the monthly cost to the company but the value of the car and it's CO2 emiisions. These are used to calculate the taxabale benefit and this is then used to reduce your tax free allowance.

e.g. a VW Giolf GTI has a new price of ca £27k, it has reasonably high CO2 emissions so the tax charge is 28% giving a taxabale charge of £7,666 which effectively wipes out your tax free allowance and costs you £3k pa in tax at 40 %.

http://www.whatcar.com/company-car-tax/results?makeId=25321&modelVersionId=25609&editionId=38103

If your company offers a monthly cash equivalent you need to compare the two to see if having a car is worthwhile (do a web search). It's often financially better to take the cash which you can spend as you wish.

Remember once you're a higher rate tax payer you can use pension payments to increase your tax free allowance so if your borderline make sure you include this in your calculations as it could push you back to 20 % which makes a big difference to the cost of a company car.

HTH,
Richard

ceeforcat

from my understanding the below is the latest figures for basic rate of tax.
Personal Allowance = £7475
Basic Rate Max = £35000
Grand Total = £42,475

No - these are last years figures although the 42475 is correct.

http://www.hmrc.gov.uk/rates/it.htm

As richbeth says the car benefit is primarily based on the cO2 emission level. A GTI may be a little ambitious but it is more than possible to drive a £20000 company car with 130 cO2 emissions - the benefit would be 17% of £20000-= £3400.

Add £3400 to your current gross salary to work out the additional tax due. The worst case scenario would be £1360 or ££113 additional tax per month in exchange for a car with tax, insurance, repairs all paid for. Decision time!

Gurj247

Thanks to you both for your responses.

So in short.
So long as my basic salary is Less than the 40% boundry (£42475) then I would only have to pay 20% Benefit in Kind tax on the car.

However as mentioned i would in effect start to pay that 20% tax much earlier as my Tax free limit would be reduced by the 'Taxable Value of the Company Car'

So here is my calculation for a company car.
Salary - £42474
Taxable Value of Company Car - £5000
Revised Tax Free amount - £7475 - £5000 = £2475

therefore -
0% tax on earnings upto £2475
20% tax on earnings from £2475 to £42474 (£39,999) = £7999.8 paid in income tax (per year)
Add on NI tax = circa £3600 (per year)
Total Taxable amount = £11,648

take home pay = £42474 - £11,648 = £30,826 (per year) = £2569 (per month).

Considering i would like a new car and i would be allowed to use the car for personal mileage as well i think that getting a company car will work out best for me personally.

I would expect to do circa 24000 miles per annum (12k business and 12k personal) in the car.

ceeforcat

Gurj247 wrote: »

Thanks to you both for your responses.

So in short.
So long as my basic salary is Less than the 40% boundry (£42475) then I would only have to pay 20% Benefit in Kind tax on the car.

However as mentioned i would in effect start to pay that 20% tax much earlier as my Tax free limit would be reduced by the 'Taxable Value of the Company Car'

So here is my calculation for a company car.
Salary - £42474
Taxable Value of Company Car - £5000
Revised Tax Free amount - £7475 - £5000 = £2475

therefore -
0% tax on earnings upto £2475
20% tax on earnings from £2475 to £42474 (£39,999) = £7999.8 paid in income tax (per year)
Add on NI tax = circa £3600 (per year)
Total Taxable amount = £11,648

take home pay = £42474 - £11,648 = £30,826 (per year) = £2569 (per month).

Considering i would like a new car and i would be allowed to use the car for personal mileage as well i think that getting a company car will work out best for me personally.

I would expect to do circa 24000 miles per annum (12k business and 12k personal) in the car.

Rather a convaluted calculation when the additional tax is simply the value of the benefit at your marginal rate. NIC, for you, does not play a part in the calculation.

Sambucus_Nigra

What's the allowance for getting your own car? You really have to compare the two. I'd never have a company car again, unless it was fully tax deductible. The allowances always make it more worthwhile these days for me.

redmalc

Gurj 247
I have been through similar calculations,i note that you say you will be able to use the car for personal mileage,do you mean the company will supply the fuel if so you will have a large benefit in kind for the fuel,mine is £3872 which for a 40% tax payer is a lot of money.
I have been doing the sums and i have agreed to pay 15p per mile for my personal mileage,and ditch the fuel benefit