Benefits in Kind/tax band question

Blue_Parrot

I can't see anywhere else to put this, so I'll try here.

To save a lot of explaining, here is the question:

A company director has basic £34,128 in salary plus £5,175 in BIK per annum.

Does that add up to the £39,303 total, for tax banding? Is there £3,082 to go, before the 40% rate kicks in at £42,385? Or should the BIK not be added to the basic salary for tax banding reckoning?

I could ask HMRC but maybe I'll get a quicker answer here.
Many thanks.

madgagoo

Add together ALL income (including BIK). Then apply tax bands.

Don't forget the personal allowance.

Blue_Parrot

madgagoo wrote: »

Add together ALL income (including BIK). Then apply tax bands.

Don't forget the personal allowance.

The BIK comes off the personal allowance, reducing it from £10,500 to £5,325.

So the total of £39,303 has only £5,325 tax free, the remaining £33,978 is taxed at 20%, right?

So there is a further £3,082 in income to go, before 40% hits, is that right?

Many thanks.

jem16

Blue_Parrot wrote: »

The BIK comes off the personal allowance, reducing it from £10,500 to £5,325.

So the total of £39,303 has only £5,325 tax free, the remaining £33,978 is taxed at 20%, right?

Not exactly as you're counting the BIK twice. You either add it up as the total income and use the whole PA of £10,600 OR you use it to reduce the PA so £10,600 minus £5175 making £5425 tax-free. So it's £34,128 minus £5425 = £28703 taxed at 20% as the next tax band is £31,785.

Basically you are still entitled to the full PA of £10,600. Reducing the PA for the tax code is just the way of collecting the correct amount of tax through PAYE.

So there is a further £3,082 in income to go, before 40% hits, is that right?

That bit's correct.