Company car tax

philng

I now have the option of taking a company car up to a monthly equivalent allowance of £375pm-If I choose a car costing over the £375pm it says the additional amount can be set off against my personal tax code.

So if I choose a car at say £475pm £100 over my allowance each month how is this £100 set off against my tax? I am a 40% tax payer.

Am I right in thinking it could be beneficial to choose a car over my allowance?

fengirl_2

I don't understand this as any car would be taxable, not just over a certain amount.
The car benefit would be included in your PAYE code and you would pay the tax due automatically each month through your salary.

cash99

Structured correctly then the extra amount you pay for having a higher value car can be deducted from the benefit in kind. i.e. the £100 will only cost you £60.

But a higher value car is likely to have a higher benefit in kind value overall so it may cost you the whole £100 or more.

e.g

£15k car (£375 / month lease) 20% CO2 benfit in kind rate = £3k taxable BIK

£20k car (475 / month lease ) 20% CO2 benefit in kind rate = £4k gross taxable BIK less personal contribution of £1200 = £2.8k taxable BIK.

So you end up paying virtually the same in tax on the car plus an extra £100 per month.


It may still work out as a cheap way to get a better car however.

philng

Thanks for your reply.

I now have some more definite figures but each site I look at comes up with a different tax and total payment.

These are the facts.

BMW 1 series 118 diesel Hat 2.0 M Sport list price £22435

CO2 119 40% tax payer

My monthly allowance from work is £375pm but this will cost me an extra £63pm.

My works site says my total cost will be £71.63 pm tax + the additional £63pm making £134pm but other sites differ. Which is correct?

dori2o

As you are paying to get a better car (Capital Contribution)the amount you pay is taken from the list price of the car.

(Cash99 advice is almost right, but you only deduct from the BIK if you are paying for the use of the car(Payback))

so

List Price £22435 - £756 = £21679

£21679 * 18% (Co2 value of 119 = percentage charge of 18
%)

= Car Benefit of £3902

Tax payable on this £1560

= approx £130 mth.

(see booklet 480 here http://www.hmrc.gov.uk/guidance/480.pdf)

philng

I think cash99 is right.

Have just read that from next tax yr 2008 tax rate on vehicles under 120 CO2 will reduce to just 10% + 3 for diesel makes 13%-This then working the way cash99 states results in matched figure of £134pm of which £63pm is add payment over my 375 allowance and the remainder tax.

caveman38

Sorry to contradict, but I was told a different story when I phoned IR the other day. I was told that employee contributions would be taken off the "Taxable Benefit" before the tax was deducted. Eg.

Peugeot 308 1.6HDi 90S 5Dr. H/B P11D Value £14,710 CO2 120 BIK 18

Taxable Benefit Calculation £2,647 @ 40% = £1,059 but where I was contributing £50 per month myself.
Taxable Benefit Calculation £2,647 - £600 = £2,047 @ 40@ = £818 payable

plus I would give my employer £50 per month. As you can see the tax would be £241 less which still equates to my contribution being £360 ( 600 X 60%)

dori2o

If you are paying a contribution to get a car that is more expensive than you employer will allow, then this is referred to as a capital contribution.

If you pay your company for the private use of the car, this is seperate and this is what Cash99 has shown the calculation for.

this is taken from the booklet 480 i gave the link for.

Method of calculation
12.2 Car benefit is calculated in a series of numbered steps (more details start at the paragraphs given):
1 find the price of the car (paragraph 12.4)
2 add the price of any accessories which fall to be taken into account (paragraph 12.7)
3 make any required deductions for capital contributions by the employee (paragraph 12.15)
4 take the lower of the amount carried forward from Step 3 and £80,000 (paragraph 12.20)
5 find the appropriate percentage for the car (paragraph 12.21)
6 multiply the figure at Step 4 by the appropriate percentage at Step 5 (paragraph 12.30)
7 make any required deduction for periods when the car was unavailable (paragraph 12.31)
8 make any required deduction for payments by the employee for private use of the car
(paragraph 12.34).

This is paragraph 12.15

Capital Contributions
Section 132 12.15 The effect of Step 3 is to reduce the amount carried forward from Step 2 where the employee
has contributed a capital sum, or capital sums, to expenditure on the provision of:
• the car (Step 1), or
• any qualifying accessory (so long as it is taken into account at Step 2).
The amount to be deducted is the lesser of:
• the total of the capital sums contributed by the employee in that and any earlier years to
expenditure on the provision of the car or any qualifying accessory taken into account at
Step 2, and
• £5,000.
Capital contributions are payments towards the cost of the car or qualifying accessories.
They should not be confused with payments for private use of the car, see paragraph 12.34.

This is paragraph 12.34

Reductions for private use
Section 144 12.34 Payments that an employee makes for the private use of the car are deducted from the figure
carried forward from Step 7 and can reduce the benefit charge to nil.
To qualify as a deduction:
• there must be a requirement in the year to make payments as a condition of the car being
available for private use, and
• the payments must be specifically for that private use. Payments for supplies of services,
such as petrol or insurance, do not count.
Any payments which the employee makes specifically for the private use of a replacement car as
described in paragraph 12.33 above are allowed as though they were payments for the private
use of the normal car in that period.

The rules do change for the 2008/09 tax year, but I have given you the calculation of what you will pay in this tax year, which is what you requested.

mikewebs

Also remember that you will be liable to pay tax on the fuel benefit if the employer pays ANY of your private mileage.

As far as I know the Car tax is worked out this way:

Cost of the car (including any extras)
Less the capital contribution (maximum £5000).

Next work out the % that you use from the CO2 emissions (This % is available on the HMRC website).

Multiply (Cost - Capital contribution) by % then take off any payment you make for using the car for private use. This gives you the taxable benefit of having the car.

Fuel is worked out by multiplying the annual allowance (last year was £14400 by the % used in the calculations above) This resulting figure is then put on the tax assessment form.

Also be aware that if the information provided by the employer on the P11D and the information you supply on the Self Assessment form don't match you could be in trouble. They do really cross check these things.