Help with PAYE and tax code

darrenmc

Thanks for the info and help so far. One thing I don't get is why do I get taxed at 41% on anything over 31850 when the 41% bracket doesn't start until 43431? It seems like I am being penalised for having a company car, which in my job is an essential tool. I agree with being taxed on it for personal use but it feels like I'm being hit twice.

Example: Me and a colleague are both on 40,000 but he has no company car as he is office based. Therefore his personal allowance would be £11850 and will only be taxed on £28150:
2,000 Income starter rate 19% 380.00
10,150 Income basic rate 20% 2,030.00
16,000 Income intermediate rate 21% 3,360
TOTAL 5770

My personal allowance is £11850 minus BIK of £8250 = 3600. This means my total taxable amount is £36400 and I am therefore already paying more tax for the benefit of having the car. I am then taxed further because by reducing my tax free allowance it gives me a larger taxable amount, some of which I have to pay 41% on.
2,000 Income starter rate 19% 380.00
10,150 Income basic rate 20% 2,030.00
19,430 Income intermediate rate 21% 4,080.30
3,896 Income higher rate 41% 1,597.36
TOTAL 8,087.66

molerat

Your car is considered an additional taxable income of £8014 so you pay tax accordingly, that extra pushes you in the 41% tax bracket. If they gave you £8014 extra instead of the car you would pay exactly the same tax. The only way to avoid it is to supply your own car and your employer pays mileage.

On £40K you would pay £5768 tax, on £40K and the car you pay £8368 so the car costs you £2600 per year which is probably less than it would cost to own and maintain a shiny less than 3 year old car yourself. If you repay your personal miles at the HMRC advisory rate then you are likely paying less than the cost of fuel.

Your pension payments are now subject to an extra 21% rebate whereas your colleague can only claim 1% on his. You could always pay more into a pension to further reduce your tax liability.