Salary Sacrifice and Tax

kayla1999

I'm hoping someone could clarify this for me please.

I pay a salary sacrifice of £311.39 a month

Below is the illustration I was provided with in my contract -

Total Gross Salary Sacrifice £3,736.64
Monthly Gross Salary Sacrifice £311.39
Savings on NI (£37.37)
Savings on Tax (£56.49)
Savings on Pension (£28.96)
Total Savings per month (£122.82)
Monthly Take Home Pay reduced by £188.57
Monthly Car Tax Liability* £50.90
Total Estimated Monthly Cost £239.4

I am aware that Car Tax Liability for 19/20 has gone up to £64.30. Therefore my estimated cost according to the lease company has increased to £252.80 per month.

However for the new tax year my tax code has been reduced by 385 - which equates to more than my salary sacrifice deductions ?!? This is where I get confused. My understanding is that I am not making any tax savings, which does support the changes by HMRC's in 2017

If that is the case, how can my contract include so called tax savings?

Thank you for taking the time to read and if anyone could help me understand this it would be appreciated

sheramber

You would be better posting in the cutting tax section.

uknick

Kayla

The 385 reduction in your tax code equates to £3,858 deducted to allow for the BIK. This is £64.30 per month grossed up, e.g. £64.30 x 12 gives £771.60 you have to pay in extra income tax. Divide this by 20% and you get £3,858.

So you pay out £311 per month for the car, which means you have lower basic salary per month, hence the savings in income tax and national insurance. You then pay an amount per month in income tax to cover the benefit in kind for the car.