How is tax on benefit in kind calculated?

lisyloo

Let's suppose I'm PAYE and I earn exactly £43K this year.
(personal allowance is £11K and basic rate band £32K).


If I then get a benefit in kind am I taxed on that at 40% or 20%.


Thankyou

Credit-Crunched

lisyloo wrote: »

Let's suppose I'm PAYE and I earn exactly £43K this year.
(personal allowance is £11K and basic rate band £32K).


If I then get a benefit in kind am I taxed on that at 40% or 20%.


Thankyou

Its added to your total income as income. so if you earn £43k and the BIK is £7k

So you are assumed to have 50k income for the tax year and are taxed accordingly

lisyloo

Thankyou.
Luckily I am in a position to alter my income.

TheCyclingProgrammer

Some benefits are added directly to your monthly pay and you will pay extra income tax and NI as if they were earnings, at your marginal rate of course.

Other BIKs attract NI on your payslip but will be reported on your P11D and taxed by an equivalent reduction in your personal allowance.

The net result is you will be taxed at whatever your marginal rate is.

lisyloo

I believe it's the later as it's medical insurance.
Basically I can decide what dividends I get (as I'm a director of a LTD company) and I think it needs to be


dividends = personal allowance + basic rate band - income - medical insurance benefit value
or
dividends = £43K - income - medical insurance benefit value

TheCyclingProgrammer

Simplest way to think about it is add up all your non-dividend income including any BIKs, deduct that from £43k and whatever is left you can take as a dividend without suffering more than 7.5% in dividend tax (but don't forget the £5k dividend allowance).

lisyloo

Thankyou :-)
Yes I know I get £5K tax free, but all of the dividend allowance falls within the basic rate tax band, so it won't save me any higher rate tax.

polymaff

Don't be too successful, though, in future - or at least after April 2018, when many with your profile will find themselves paying about £1k extra in tax if they don't restrict their dividend income.

And this from a Conservative Chancellor!

lisyloo

Yes I know poly.
A number of GPs and their ilk will retire early because of the pension LTA.
How is that good?

TheCyclingProgrammer

polymaff wrote: »

Don't be too successful, though, in future - or at least after April 2018, when many with your profile will find themselves paying about £1k extra in tax if they don't restrict their dividend income.

And this from a Conservative Chancellor!

If you're referring to the dividend allowance, only those whose non dividend income exceeds the higher rate threshold will be paying higher rate tax on the extra £3k. Those with the usual small salary + dividends will only be paying £225 extra a year, regardless of how much they take in dividends (and that's before accounting for increases in the personal tax allowance).

lisyloo

The moral side is a great deal more complicated IMO.
Some PAYE payers might consider 7.5% dividend tax immoral, however then you'd have to take into account that people like us may have high expenses (like a London flat) because we're economically mobile and live away from home and it wouldn't benefit the economy to disincentivise that activity.
I try not to get too weighed down with moral judgments and just get the information and plan as best we can.

However I dio think the fact that a load of GPs, dentsts, surgeons, hospital consultants are going to retire early because of pension LTA is a major unintended consequence.