New job - salary, benefits and tax

James_Blonde

I need some help....

I've just got a new job with a decent enough (£40k) salary and a 30% benefits package, so the whole package is worth £52k. Some of that benefits package has to be used for such things as pension (10% of total package), disability insurance (£20 a month), medical insurance (£45 a month - I don't want it, but I'd still get charged for it apparently) and life cover (£5 a month), that uses up just over 50% of the benefits package (about £6k) but some of those things can be reduced. The rest of the package can be taken as monthly salary, or you can take (or increase) other benefits.

I want to take the company car option (and possibly dental insurance as well, but that's fairly trivial really). The paperwork that comes with the benefits package suggests that a company car can be taken tax and NI free, and, whilst I've not seen the options yet, I suspect I'd be taking a car at the £400-£500 a month bracket. I know I need to pay BIK, but I also don't know how to calculate that as I don't know what tax rate I'm on.

I'm trying to figure out what the best options for me are, and I'm really struggling to understand even what tax band I'll end up in!

I started putting an options spreadsheet together, which correctly calculates my tax and NI assuming my salary is £52K, but as soon as I start adding benefits, it all goes wrong, and it may already be wrong if my salary isn't £52K! I know there are tax calculators online, but I couldn't find one that really dealt with benefits package and its those calculators that made me realise my spreadsheet was probably wrong.

- So, for tax purposes, is my salary £40K or £52K? (in other words, do I start in the higher tax band, or do I only go into it if I take some of my benefits package as salary?)

- Is the tax rate calculated before non-taxable benefits are taken off, or after they're taken off?

- If I spend my benefits package on benefits (rather than taking it as salary), do I stay in the standard tax bracket?

- What are the implications (other than BIK) of me taking a company car?

- Is a company car actually going to be worth it (this winter has made me realise a 4wd would make sense), or would I be better off buying my own (which I probably would have done anyway).

Basically, I haven't got a clue what to do for the best, or even what I'm going to get paid! Can anyone help??

Super_Whiskey

I can only answer some of your questions but tax will be calculated once all the non-taxable benefits are taken off. According to HMRC, 40% tax starts at about £42k so if you used the package all as benefits then obviously you won't get taxed 40% on it but if you're using 6k for the benefits package then you'll only pay 40% tax on about £4000 or about £130/m.

James_Blonde

Ah brilliant, thanks! That's a good start, and I guess it'll encourage me to fully use the benefits package, especially if they say the car is tax / ni free... Otherwise there aren't that many features in the benefits package I'd take, as I don't have kids!

Darksparkle

The gov site has a car benefit (and fuel if applicable) calculator you can use.

Whether it's worth it really depends on the circumstances. Your personal circumstances, the car, the tax position.

Some people I know prefer it because they usually have a car they wouldn't afford on their own. Plus the company pays all the expenses eg insurance, repairs, MOT etc.

Others don't as they may already have a personal car.

If you google salary calculator, that allows you to add details of salary, pension, taxable benefits etc. You can play around with that.

James_Blonde

Thanks! Yes, I did try some of the salary calculator sites, but I just couldn't seem to configure them properly and the results didn't seem to make so much sense. It's one of the reasons I thought it worth trying to create my own, if only to understand how it would all be calculated!

The biggest problem when trying to use them is, what is my salary for the purposes of calcuating these things? My pensionable salary is £40K but my total benefits package is worth £52K. The pension contributions come out of the £12K benefits package, not out of my salary, so I think that complicates things as well (if I put in a pension percentage, it takes it off my salary, making it lower than it should be).. How do I factor in that £12K? Most of the benefits are apparently tax free (assuming I don't take the cash), so I guess don't get added as taxable benefits in the calculators, but there is nowhere else for them. And is the car really tax and NI free as I've been told?!

Yeh, my personal car is on its last legs, which is why I was quite keen on the car option. I think it should be fairly easy to figure out whether company or personal car / leasing works best for me once I can see the options - useful to get a general feel for the benefits / pitfalls as part of the wider package though.

getmore4less

Is extra holiday one of the options?

pension tax free so thats £5200 taken off the £12k
Heath I think thats taxable(That's a benefit for the company to get you back to work quicker than the NHS can sometime.)
Life ? not sure

You will still be £1k+ short of 40% so some of the £6200(BIK) left to allocate will be at 20%.

For a rough estimate pick a car and look at the BIK and use 40%.
£6200 will get taxed/NI at 42% net around £4k you can run a perfectly adiquate car on that without any BIK costs.

it gets a bit messy because BIK get taken off the personal allowance so some income can get taxed/NI at 52%

James_Blonde

Thanks! Yep, holiday is an option, though I'm on 30 days + public holidays.

Yeh, says health is taxable. I don't want it and wish I didn't have to take it, but... meh

Oh, that's good! That means I now know what to calculate my BIK at - I'd forgotten about that! and if it's at 20%, that makes life a bit happier. Also good to know what the cash value would likely be, so can look at cars in that range too. I'm paying about £250 a month for my current car, so either I'll end up saving that, or can use it to boost the car a bit.

Just trying to be as efficient as I can be with this change, and maximise my benefits / salary as much as possible.

Darksparkle

You need to breakdown exactly what is included.

What do your payslips also show as your gross pay?

You don't pay NI on a company car, only the company does.

The gov calculator I mentioned tells you to 20% and 40% tax rather than you having to calculate yourself. You need the list price, fuel type and CO2.

James_Blonde

Not had a payslip yet, which I guess would have made life a bit easier in providing the basic info!

So what's mandatory:

Pension - 10% (£433 a month), which will be 10% of the total benefits package (£52K) rather than the salary
Disability cover - £21 a month
Life insurance - £5 a month
Medical Insurance - £45 a month (NI savings, but not tax)

So the benefits will cost £505 a month / £6060 a year. So logically I guess, I remove those from the £52K for NI, and everything but medical from tax. That would leave me £5940 of my benefits package to take as I wish. Most of that would be charged at the higher rate if I took it as salary, but I guess wouldn't be charged if I took it as tax efficient benefits? So logically it makes sense to take the benefits rather than the cash?

The only other options which interest me are the car, and possibly dental insurance (anywhere between £4 and £21 a month)

In terms of car, if I take that entire amount as a car, that (I guess) means that I'd never go into the higher tax band, however if I took it as salary and bought a car myself, I would. It would be a case of figuring out whether the cost of BIK / servicing / MoT / Tax on a car that'll cost me less outweighs the cost of a higher tax rate and buying the car myself. That should be fairly straight forward to work out with those calculators you've provided I think.

As much as anything, it's checking that my logic and assumptions are sound. A lot of this just wasn't making sense when looking at the salary calculators.

James_Blonde

OK, so I'm thread dredging a bit here, but it's my thread so I'm sure that's OK somehow! There is probably a lot to this, so happy to walk it through, and as I'm confused, you might need to treat me like an idiot.

I did end up taking a car as one of my benefits and thought I had the whole thing figured out. I had a working pay and benefits spreadsheet, and my first 2 months of car payments on my payslip were pretty much what I expected.

and then on month 3, my tax code changed. Having looked back at this thread, I see someone mentioned it would, but I'd completely forgotten. Anyway, I'm feeling totally confused and lost. I feel like I've been misled by the car leasing company, and I can't seem to get a straight answer from either them or HR. HMRC have been helpful, but can't give me a complete answer, so I've come back for some assistance.

I ended up taking a car that was more expensive than I'd originally said. I received a quote from the leasing company based on me being at a 20% rate, believing at the time that tax rate for BIK was calculated after non-taxable deductions (so I thought by taking all of those benefits I'd taken myself back into the 20% tax rate). I'm guessing in hindsight this isn't the case. Can someone confirm that this is right? When I got the quote, I was given the following figures:

Gross Sacrifice - £597.97
P11D value - £41980
Tax rate - 20%
Tax Saving - £119.59
NI Saving - £71.76
Benefit in Kind - £174.92
Est cost to me - £581.54
Total saving - £16.43

So I assumed from those figures and the way they're written that the Benefit in Kind I'd be charged would be included in the monthly payment. At no point was I told that my tax rate would change. In fact I specifically asked via Email before I accepted the quote whether there would be any other deduction other than that monthly payment, and was told no.

The quote was tweaked when I placed the order - the P11D value was higher, so when my monthly payment came out and was higher, I wasn't surprised - it was pretty much where I'd expected - £635.37 out of my gross salary. And this was how it was for 2 months. Gross salary £3333.34, after non-tax deductions ££3872.79, after all deductions £3827.29, net pay £2494.87.

On the third month, my tax code changed from 1100L to 191L, so my taxable allowance had been reduced from £11000 to £1910, making me net pay £2192.07. So I appear to be paying an extra £300 a month I wasn't expecting. Maybe I should have been expecting it.. but, well, it's the first time I've had a work benefits scheme that everything seems to come out of.

I tried to clarify with HR who put me on to the leasing company, who partly insulted me (maybe I deserved it for not knowing this stuff in detail, but isn't their job to help me?) and partly just confused me further. I went through some stuff with HMRC, who seemed to indicate that they had no evidence I was making payment towards having car, so they believed my car was a "free" company car, which explains why my tax code is so low. I went back to the lease company who told me I wasn't making payments towards the car, that I was just paying to lease it (isn't that a payment?! Even if I'm not paying off the car, I'm paying for the benefit - it isn't free?), went back to HMRC who said I probably needed to speak to my Payroll as I'm paying for private use, and therefore my monthly contributions should be added together and taken off the P11D (and added back to my tax free allowance). I phoned payroll and they just told me it was all right. Wibble.

HMRC thought that it would all ultimately resolve itself when the tax year ends and they get my P60, but I'm a bit more paranoid than that, and besides, I've had conflicting information, and been misled by the original quote. so I want to understand how much this car is costing me, why, and see whether I'd want to pay to get out the lease and get a cheaper car, or get the same car on a personal lease for half the cost!

Anyone able to help / advise???

Alarae

From a quick read, I'm guessing that you are under the belief that your benefits package is part of your salary, and you then pay for those benefits out of those portion.

From what I gather, that's wrong. Your salary is 40k. Your employer is providing you with 12k of extras which they are paying for- and then you pay the BIK tax.

Hmrc have reduced your tax code by your the amount of your benefits, or close to it, in order to recover the BIK from your tax code. You don't actually pay for the car payments. Your employer is, hence why it is a 'free' car in the eyes of hmrc. It would be different if you were actually paid 52k and then the car payments were deducted, as then there would be no BIK because you would have made good the payments the employer would make on your behalf.

To work out the BIK tax due on the car, take the P11d list price and then times it by a percentage in the p11d tax tables, which is based on the car c02 emissions.

I'm assuming you get your BIKs paid via payroll, so work out the annual cost and then divide it by 12.

Other benefits will be taxed as if it is employment income, based on the cash equivalent.