Query re 40% Tax / Benefit in Kind & Pension Impacts

nomunnofun

20vt-rs wrote: »

This is probably another question then, at what point do the inland revenue know to tax our car at 40% instead of 20%? I am not great with this kind of thing, I know what I want to achieve (get to 20%) but not sure the best way to do it. At the mo it looks like increasing my pension contribution by 1% may get me there, does that sound right based on all of the above info?

HMRC don't and don't need to. The PAYE system will automatically collect the extra tax. Let's say that the threshold was 41845 - all of your tax will be at 20%. However, the threshold (why have put an extra 'h' in this word previously?) is 41450 and the payroll system used by your employer will automatically deduct the higher rate tax.

Increasing your pension contributions by 1% will have the desired effect as it will reduce the value of your taxable salary plus your car benefit to below 41450.

zygurat789

20vt-rs wrote: »

This is probably another question then, at what point do the inland revenue know to tax our car at 40% instead of 20%? I am not great with this kind of thing, I know what I want to achieve (get to 20%) but not sure the best way to do it. At the mo it looks like increasing my pension contribution by 1% may get me there, does that sound right based on all of the above info?

Your BiK is part of your salary for tax purposes. Your salary is taxed not as the amount of money you receive but as the amount of money you receive plus your BiKs. Your BiKs are not taxed separately.
I think you are looking at this from the wrong angle; if you pay 40% tax then it would be a good investment for you to put something in a pension because you get 40% tax relief, that means that it costs you £60 whereas someone on 20% tax would have to pay £80. How much should you invest, well how much are you paying 40% on?
Having made the investment you now pay all your tax at 20%
A word of warning the amount of BiK on a car changes from year to year for reasons other than changing the car, it is quite common for the BiK in your code number is out of date and lower than it should be if you work on exact figures then you may be caught out when and if a p800 is done.

20vt-rs

Ok thanks guys for your input, I think I understand this all now. Pros and cons I suppose, my goal was to get my Co car tax down but in doing so and understanding this a bit better, I also reduce the relief I get on pension input by going back to 20%.

I suppose I need to work out the figures in a bit more detail, I know that on 40% my car tax is £148, but how much extra relief I get on my pension by being on 40% I am not sure on. Perhaps a question for the pension area!!!

nomunnofun

20vt-rs wrote: »

Ok thanks guys for your input, I think I understand this all now. Pros and cons I suppose, my goal was to get my Co car tax down but in doing so and understanding this a bit better, I also reduce the relief I get on pension input by going back to 20%.

I suppose I need to work out the figures in a bit more detail, I know that on 40% my car tax is £148, but how much extra relief I get on my pension by being on 40% I am not sure on. Perhaps a question for the pension area!!!

I am sorry but you appear to be unable to grasp this!

The extra relief that you will get on the pension will be equivalent to the extra tax that would have been payable on the company car had you not done so!

20vt-rs

nomunnofun wrote: »

I am sorry but you appear to be unable to grasp this!

The extra relief that you will get on the pension will be equivalent to the extra tax that would have been payable on the company car had you not done so!

Looks like it - but now that makes sense, you can tell I don't do this often! Consider this grasped...

20vt-rs

Someone else confused like I was, but this helps make it all clear as well!

http://www.taxationweb.co.uk/forum/question-on-40-bracket-company-cars-t34968.html