car allowance, BIK, P11D, Tax. Confused. please help

isotonic_uk

Hi All

I am due to start a new role in 3 months which has a basic which puts me on the 40% tax bracket as well as £5700 car allowance. This is all new to me, I have done plenty of reading online as well as looking at similar threads on the MSE forum and just wanted to understand and clarify some further questions I have:

1. I believe I still would need to pay BIK rate per year whether I lease or buy a used car outright. is this correct?
2. If I buy a used car which had optional extras fitted at first purchase and I do need to pay this BIK rate. I calculate on the car when it was first released. Do I also need to include the options and is there a site I can do this on or another calculator that would do this for me?
3. Is it correct that Diesel cars incur a 4% extra surcharge? is this applicable for both new and used car?
4. My role is a non sales role and its expected that my travel will be no more than 4000k a year. I am opting for petrol over diesel because of this. I expect to do about 6000K privately. Is there anything else I should factor in based on this.
5. What is the reason why every tax year the bik rate goes up?


I do have some more questions, for the life of me I forgotten what they were now so will put them in when they come back to me but any advice on the questions I have raised would be most appreciated.

Many Thanks

Dazed_and_confused

1. What have you read that makes you think this applies?
2. Why do you think your own personal car will be a company benefit?
3. They might as a company car but you appear to be talking about purchasing your own car with some of the £5700 "car allowance"
4. Maybe you need to understand the basics of car allowance before deciding on the exact car
5. Because the chancellor identifies it as (easy?) extra tax revenue

singhini

isotonic_uk wrote: »

Hi All

I am due to start a new role in 3 months which has a basic which puts me on the 40% tax bracket as well as £5700 car allowance. This is all new to me, I have done plenty of reading online as well as looking at similar threads on the MSE forum and just wanted to understand and clarify some further questions I have:

1. I believe I still would need to pay BIK rate per year whether I lease or buy a used car outright. is this correct?
2. If I buy a used car which had optional extras fitted at first purchase and I do need to pay this BIK rate. I calculate on the car when it was first released. Do I also need to include the options and is there a site I can do this on or another calculator that would do this for me?
3. Is it correct that Diesel cars incur a 4% extra surcharge? is this applicable for both new and used car?
4. My role is a non sales role and its expected that my travel will be no more than 4000k a year. I am opting for petrol over diesel because of this. I expect to do about 6000K privately. Is there anything else I should factor in based on this.
5. What is the reason why every tax year the bik rate goes up?


I do have some more questions, for the life of me I forgotten what they were now so will put them in when they come back to me but any advice on the questions I have raised would be most appreciated.

Many Thanks

1 - No you do not pay BIK if you have bought a used car. The £5,700 will be added to your wage slip by your employer and will be taxed just the same as if it was salary (so £5,700 / 12 months = £475 car allowance each month less 40% income tax = £285 per month take home). Remember you will also need to factor in Road tax, Insurance and servicing the car.
2 - No need to worry about the spec of the car as its not subject to BIK (see point 1)
3 - Yes (but it will not effect you, see point 1)
4 - As per point 1 you will need to have adequate insurance on the car that covers business use, and also you will need to think about Road Tax and Servicing costs.
5 - as cars get older they pollute more (and as pointed out, the tax man makes more money).


What you haven't mentioned is if your company is paying for the petrol (i.e. you submit the petrol receipt in your expenses and your company pay you back), or if your company is going to pay you any money for the business miles you are doing (my previous company paid me 45p per business mile for the first 10,000 miles and anything above this was paid at a rate of 25p).

xylophone

The car allowance is taxed as income.

https://www.citizensafe.co.uk/tips-and-guides/how-does-company-car-tax-work

Had you considered increasing your pension contributions?

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

isotonic_uk

singhini wrote: »

What you haven't mentioned is if your company is paying for the petrol (i.e. you submit the petrol receipt in your expenses and your company pay you back), or if your company is going to pay you any money for the business miles you are doing (my previous company paid me 45p per business mile for the first 10,000 miles and anything above this was paid at a rate of 25p).

Thank you singhini, yes sorry I should have mentioned that. Private is obviously my own but any business miles I do will paid at 18p a mile and i get an extra 5p if I have a passenger with me.

I understand through the P11D I can get some back from the tax man, not the full difference from 45p - 18p. Would this mean I need to do some sort of self assessment through HMRC?

many thanks

Dazed_and_confused

I cannot see any reason for a P11D to be involved as far as the mileage is concerned. If your employer is paying within the tax free amounts then they don't need to report them as there is no "benefit".

If you have no other reason to need to complete a Self Assessment return then a mileage claim won't change that unless it is a very large claim (more than £2.5k I think).

Otherwise a P87 (google it for more info) can be used.

You can claim tax relief on the difference. As a higher rate payer this could be worth 10.8p/mile* or fractionally more if you are Scottish resident for tax purposes
*45p - 18p reimbursed = 27p x 40%

singhini

isotonic_uk wrote: »

Thank you singhini, yes sorry I should have mentioned that. Private is obviously my own but any business miles I do will paid at 18p a mile and i get an extra 5p if I have a passenger with me.

I understand through the P11D I can get some back from the tax man, not the full difference from 45p - 18p. Would this mean I need to do some sort of self assessment through HMRC?

many thanks

Your welcome. yes you can claim the "tax relief" on the difference between 18p and 45p (what this means in plain English is: 45p - 18p = 27p x 40% tax relief rate [im assuming your a 40% tax payer] = 10.8p x approx. 4,000 business miles = £432


The form you need to fill in [I think?] is called P87 form (ive never filled one in as I have an accountant that deals with my tax).


Personally I find tax very taxing and complicated - good luck

singhini

Dazed and confused beat me to it - What he's saying is correct

MDMD

Don’t forget you will pay 2% NI on the car allowance on top of the 40% tax. You’ll get some of the 40% back on the tax relief claim for business mileage but not the NI