Benefits in Kind taxed through tax code?

EmmaS2007

Hello all,

Wondering if anyone knows the answer to this...

In the last year my total income was about £98,000 with an extra £7,000 paid as benefits in kind.
My tax coding notice reduced my tax free personal allowance by £7,000.
But in my self assessment return it is just adding it to my income.

So in the self assessment it says I have income of £105,000 - meaning £5,000 is charged at the effective marginal rate of 60%.

But in the tax code, and how I've been paying tax all year, it shows my personal allowance being reduced by £7,000, so that much is taxed at 40%. My total income doesn't go over £100,000 it just changes the tax code, so no 60% marginal rate.

That means the tax return I've drafted online says I owe an extra c£1,000 in tax but my tax code has been correct all year with the right benefits etc.

I can't find the answer to this anywhere online. I will call HMRC tomorrow but wondered if anyone could advise what is right? Should BIK adjust personal allowance OR be added to income?

Thanks in advance.

p00hsticks

Not sure it helps, as I'm a bit out of the loop these days, but are you sure the tax code adjustment related to benefits for the last year (2018-19) and not the year before (2017-18) ?


It's been a while since I was in this positon, but I seem to recall that my tax code was adjusted for one year to take account of the benefits from the previous year (as detailed in the P11D). HMRC didn;t know what benefits I's received during the year until my employer sent them the P11D, so the adjustment was always a year behind.

BoGoF

It does both. Any benefit in kind is taxablle income but the only way to collect it via PAYE is by reducing the tax code.

BoGoF

And your tax code hasn'tbeen correct as you weren't entitled to the full personal allowance (assuming you were given it) as your income was over £100k.

Dazed_and_confused

My tax coding notice reduced my tax free personal allowance by £7,000.

Are you certain about this? Could it be that your tax code included Personal Allowance of £11,850 with a £7k deduction for benefits in kind.

In which case your tax code (provisionally) allowed you your full Personal Allowance.

But in my self assessment return it is just adding it to my income.

That sounds correct. Your tax code is just a provisional attempt to collect the correct amount of tax, it is your Self Assessment which establishes the final position.

My total income doesn't go over £100,000 it just changes the tax code, so no 60% marginal rate.

If you have income (taxable salary?) of £98k and benefits on kind of £7k then your income is clearly in excess of £100k. Or is there something you aren't telling is?

That means the tax return I've drafted online says I owe an extra c£1,000 in tax but my tax code has been correct all year with the right benefits etc.

If your tax code was based on a Personal Allowance of £11,850 them it wasn't, with hindsight, correct.

Chances are HMRC estimated your taxable salary to be say £90k, plus benefits in kind £7k would leave you with the full Personal Allowance. The actual facts once the year is over indicate a reduced Personal Allowance is due.

You might want to look at your current year's tax code on your Personal Tax Account on gov.uk to see what estimate of your salary HMRC are using and, if necessary, adjust it to what you think will be the correct figure.

EmmaS2007

Ah ok I understand it now, thanks everyone.
It is definitely this year’s BIK but what you’ve all said makes sense - my tax code was an estimate but the self assessment is correct and reflects total income. So the tax code wouldn’t have been what they gave me if it had reflected the actual total benefits as it would need to tax me more.

Thanks for responses - I just couldn’t get my head round it.