Company Car & 40% Tax Rate

kjones1105

Hello,

I've posted before about choosing between a company car and keeping the cash alternative and now the 20% band has increased slightly, I'm tempted to look into a company car again.

I'm eyeing up an Audi 1 which has a BIK value of £4,338.00 (my cash allowance alternative is £5080 and I know I get taxed on the higher of the 2)

I get a trade-down payment of £ -67.29 with this car too.

My base salary is £43,350 so with the cash allowance of £5080, I still remain in the 20% bracket and my BIK payments are £26.54 (and raising every year).

My question is, if I were to get a good pay rise over the period of the car hire (3 year total) and I then find myself hitting the 40% tax rate, do I suddenly jump to the 40% BIK payment of £105.57 or does my payment just increase from the £26.54 to say £40 because of the extra £1k that sits in the 40% bracket (as an example)

If it pushes me straight to the £105.57 payment then I don't see the benefits of getting the company car when I'm so close to the 40% bracket but if it just means the monthly BIK payments rise by £10/£20 per month then it's OK.

I hope this all makes sense!

Thank you.

BoGoF

Have to say I'm struggling to follow what you are saying but you only pay higher rate tax on the amount of BIK that falls into the higher rate bracket....not on all of the BIK.

AdrianC

You don't get taxed on "the higher of" your co.car or your cash allowance alternative. You get taxed on whichever of the two you take.

BiK follows the normal pattern of any income when it hits a band threshold - you pay the higher band only on the amount above the threshold.

marlot

kjones1105 wrote: »

...I'm eyeing up an Audi 1 which has a BIK value of £4,338.00 (my cash allowance alternative is £5080 and I know I get taxed on the higher of the 2)

I get a trade-down payment of £ -67.29 with this car too.....

No, you get taxed on the BIK value.


If you can take the trade-down payment as salary, you get taxed on that.


So overall, pretty much the same tax whichever way you go.

kjones1105

Thank you for your replies.

I'm comparing leasing the same car privately and it looks like both will leave me with the same amount of cash afterwards.

The only benefit of going with the company car over the lease is that it's completely hassle free whereas private lease I am responsible for insurance etc. (I would add maintenance if I leased privately)

A lot to consider!