Car Allowance and Higher Tax Bracket

jonp1986

Hi all,

I am about to take a new job and I'm opting out of the company car scheme for the first time. I think I've got my head around how much it'll cost in terms of BIK tax vs. what it'd cost to run my own car.

My basic salary is in the 20% tax bracket, but with my car allowance, my total would be circa £1000 into the 40% bracket. Presumably I'd just pay 40% tax on the 'last' £1000?

Also, in terms of business miles - my company currently pay 20p per mile. I do circa 20k miles per year business mileage.

I understand I'm entitled to claim either 20% or 40% of remaining mileage (45p for the first 10k miles - ie. claim 25p x 10,000 and 25p for the other 10k - ie. claim 5p x 10,000). If I'm technically in the 40% tax bracket, would I claim these at 40% rather than 20%?

Any help or advice would be really useful!

fatrab

Info on mileage read the guidance on form P87, I don't think you have any input as to how much gets paid back as a percentage iirc.

And yes you are correct, only 40% on the amount you go over the threshold by.

BoGoF

In your example, if you had paid tax at 40% on £1000 of your income then the first £1000 of your mileage claim would get tax relief at 40%, with the remainder at 20%.

Car_54

jonp1986 wrote: »

If I'm technically in the 40% tax bracket, would I claim these at 40% rather than 20%?

Neither. Those, and any other expenses, are totalled and deducted from your income. The tax is then calculated at that point on the net figure.

F1F93

jonp1986 wrote: »

Hi all,

I am about to take a new job and I'm opting out of the company car scheme for the first time. I think I've got my head around how much it'll cost in terms of BIK tax vs. what it'd cost to run my own car.

My basic salary is in the 20% tax bracket, but with my car allowance, my total would be circa £1000 into the 40% bracket. Presumably I'd just pay 40% tax on the 'last' £1000?

Also, in terms of business miles - my company currently pay 20p per mile. I do circa 20k miles per year business mileage.

I understand I'm entitled to claim either 20% or 40% of remaining mileage (45p for the first 10k miles - ie. claim 25p x 10,000 and 25p for the other 10k - ie. claim 5p x 10,000). If I'm technically in the 40% tax bracket, would I claim these at 40% rather than 20%?

Any help or advice would be really useful!

You are on the right lines.
Let's assume that your salary will be £47k.

Your mileage counts as an allowable expense.
This expense is the 'extra' that you are allowed to claim over what you already get from your employer - as you have correctly stated, your expense will be 25p for the first 10,000 miles (£2,500) and 5p for the next 10,000 miles (£500).
This gives you £3,000 of expenses.

Your tax will therefore be calculated on employment income of £44,000 (£47k salary less £3k expenses).

Your personal allowance (usually £11,850 for 18/19) is then deducted off of this to leave you with taxable income of £32,150.

The first £34,500 of taxable income is taxed at 20%, giving a tax charge of £6,430. If you had any remaining income above the basic rate band of £34,500, it would be charged at 40%.


So to answer your two main questions, yes you only pay tax at 40% on the 'last' £1k, assuming no other taxable income, and sort of - your mileage claim will reduce the amount of tax you pay at 40% (up to the amount of tax you have paid at 40%, at which point you will get tax relief at 20%).

Obviously your actual tax liability will be slightly different depending on your personal circumstances - for a specific calculation please see an accountant.

Clive_Woody

Could you salary sacrifice towards a pension to avoid going into the 40% band.