Company car and impact on income tax

Bibblegum

Hello,
We are having a restructure at work and my job is going to change. I am due to have initial negotiations with my bosses next week which will include salary/package.

I may have the opportunity to take a company car and think understand thank Bik tax / how much it would roughly cost me per month.... However what I can figure out is whether the bik value will affect my income tax band?
E. G if I we agree a salary of 44k and the car has a bik value of 5k will that tip me over the 40% tax threshold? If so I would pay 40% tax on the car not 20%?

Thanks in advance

marlot

Bibblegum wrote: »

...we agree a salary of 44k and the car has a bik value of 5k will that tip me over the 40% tax threshold? If so I would pay 40% tax on the car not 20%?...

You'd pay income tax on your total income of £49k. Most at 20%, but some at 40%.


The threshold for higher rate tax is due to rise to £50k in April.

Dazed_and_confused

and think understand thank Bik tax / how much it would roughly cost me per month....

If this is true then how can you not know the following

E. G if I we agree a salary of 44k and the car has a bik value of 5k will that tip me over the 40% tax threshold? If so I would pay 40% tax on the car not 20%?

If you are using some online calculators they don't tend to cope with this situation very well.

You don't just pay a fixed rate of 20% or 40% (or any other rate) on car benefit, it all depends on your total income just like other extra taxable income would.

Anyway, to answer your question (using 2019:20 rates and assuming pay rise etc). Salary is irrelevant for tax purposes it's taxable salary which counts and, because of pension contributions this can be much lower i.e. your £44k salary may translate to say £40k on your P60. You then add the benefit in kind (company car) and tax is calculated on the total so you could end up like this,

Taxable Salary £46,000
Car Benefit £5,500
Total Income £51,500
Less Personal Allowance £12,500
Income to be taxed £39,000
£37,500 x 20%
£1,500 x 40%

So you are paying 20% and 40% tax on the car

This assumes you aren't either Scottish or Welsh resident for tax purposes and don't have any other taxable income.

Bibblegum

Thank you for your answers, crystal clear.

System

Asa far as I'm aware, as soon as you earn over the 40% tax threshold, your company car is taxed at a straight 40%. It's not a sliding scale like the tax system.



When you look at the P11D of company cars, you'll see two rates. One for 20% and one for 40%. You'll notice how different they are. Literally, you pay double if you are in the higher tax band.

marlot

andydownes123 wrote: »

Asa far as I'm aware, as soon as you earn over the 40% tax threshold, your company car is taxed at a straight 40%.... .

That's true of every aspect of income tax - as soon as you hit the threshold, all additional income is at 40% [until you hit the top bracket].


OP - Here's the HMRC calculator which will work it all out for you. http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

Berkshire_Beancounter

andydownes123 wrote: »

Asa far as I'm aware, as soon as you earn over the 40% tax threshold, your company car is taxed at a straight 40%. It's not a sliding scale like the tax system.



When you look at the P11D of company cars, you'll see two rates. One for 20% and one for 40%. You'll notice how different they are. Literally, you pay double if you are in the higher tax band.

With respect, I don't think that's correct. As Dazed and Confused said earlier in the thread, you pay tax on the total, and if your total taxable income including benefits in kind pushes you into the 40% tax bracket, you pay 40% tax on the top slice over and above the 40% threshold.

When I had a company car, my P11ds never quoted 20% or 40% tax rates - just the value of the benefit of my car.

If any calculators are showing the amount of tax at a binary 20% or 40%, again as Dazed and Confused said, it's probably because the calculators are not that sophisticated (and boy oh boy is tax getting more and more complicated as the years go by). An online calculator can't know if your income is at a margin point where some of it is chargeable to 20% tax and some to 40%. Rather than try and complicate the calculators to work out if tax is payable partly at 20% and partly at 40%, they go for one or the other.

System

Just look at a site like Select Car Leasing. It gives you 20% and 40%. Like I said, there's no sliding scale and it's not on the total you earn. You earn over the 40% threshold, you pay 40% on your car, not 20% for the first bit.
And with respect, nearly every leasing company lets you know the 20% and 40% if you know where to look

Dazed_and_confused

With the greatest of respect you are completely wrong.

What you are essentially saying is that someone earning (taxable salary) £40,000 with a company car benefit of £6,351 would pay 40% tax on £6,351 yet someone with taxable salary of £40,000 and a "car allowance" (basically extra taxable salary) of £6,351 would pay 20% tax on £6,350 and 40% on £1.

I don't think so.