Company Car Tax Advice

Pud_McCatford

Good Evening
Any advice on the following queries would be gratefully received! 
I have recently been given the opportunity of a company car, and whilst trying to research the cost & tax implications online etc and also with colleagues, I seem to have met myself coming back on more than one occasion!
My Basic Pay = £42,000 (Tax Code 1375M)
BIK = £5,089
Total = £47,089
This total so far obviously falls below the 50k threshold, and would mean I would be taxed at the basic 20%, right??
However, one of my colleagues as also suggested that the 8% pension contribution I receive from my employer will also be taken into account???
Does this sound correct?? If so this tips me over the 50k slightly, and puts me into the higher rate of 40%. Would this then mean 40% on the whole BIK??
To add to my growing confusion the car leasing company my employer uses, also charge a trade up price for different spec levels of vehicle, if I was to chose a vehicle with an uplift, does this extra amount get classed as an increase to the BIK value, or would it be a simple deduction from my salary.

Many thanks for any advice or guidance in advance
Kind regards
Pud.

Dazed_and_C0nfused

However, one of my colleagues as also suggested that the 8% pension contribution I receive from my employer will also be taken into account???

Just ask your colleague to fully explain this.

There is either something you aren't telling us or your colleague is clueless.

My Basic Pay = £42,000 (Tax Code 1375M)
BIK = £5,089
Total = £47,089
This total so far obviously falls below the 50k threshold, and would mean I would be taxed at the basic 20%, right??

Yes.  Your Personal Allowance of £12,500 and basic rate band of £37,500 would mean that all your income falls within the basic rate band.  Assuming you don't have any other taxable income you haven't so far mentioned.

However, one of my colleagues as also suggested that the 8% pension contribution I receive from my employer will also be taken into account???
Does this sound correct?? If so this tips me over the 50k slightly, and puts me into the higher rate of 40%. Would this then mean 40% on the whole BIK??

No.  If your total taxable income was say £51,000 and it was all from earned income such as wages and company benefits then it would be taxed,

£12,500 no tax (Personal Allowance)

£37,500 x 20% (basic rate tax)

£1,000 x 40% (higher rate tax)

You would normally then get £250 knocked off your tax bill from receiving Marriage Allowance but in the scenario outlined above you would lose that as you would be a higher rate payer.

To add to my growing confusion the car leasing company my employer uses, also charge a trade up price for different spec levels of vehicle, if I was to chose a vehicle with an uplift, does this extra amount get classed as an increase to the BIK value, or would it be a simple deduction from my salary.

Not 100% sure exactly what you mean but the BIK is based on the manufacturers list price (plus extras) so it is most likely to mean an increased BIK value and therefore more tax to pay.

molerat

To add to my growing confusion the car leasing company my employer uses, also charge a trade up price for different spec levels of vehicle, if I was to chose a vehicle with an uplift, does this extra amount get classed as an increase to the BIK value, or would it be a simple deduction from my salary.

That all depends on who pays the uplift charge.

Pud_McCatford

To add to my growing confusion the car leasing company my employer uses, also charge a trade up price for different spec levels of vehicle, if I was to chose a vehicle with an uplift, does this extra amount get classed as an increase to the BIK value, or would it be a simple deduction from my salary.

That all depends on who pays the uplift charge.

Unfortunately that would be me! 

Jeremy535897

The BIK is based on the actual vehicle, so if you trade up, it may go up, but if you make a personal contribution, that comes off the BIK. See https://www.gov.uk/tax-company-benefits/tax-on-company-cars

Grumpy_chap

If the uplift charge is deducted from your salary, that reduces tax level, but it will then increase by the change in the BIK on the "better" car.  It's possible that the "better" car will be lower tax, if hybrid or electric.

jimmo

You need to be careful with this.

As your employer charges a trade up price for a better car that is unlikely to be regarded as a contribution solely for private use. If so your contribution will not be deductible from the benefit charge as such. Unfortunately in the following links the text seems to have been duplicated so you get 2 lots of the same text.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim25260

Also see the examples here.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim25261

 

It may however be that your contribution(s) should be regarded as capital contributions. If so they can be deducted from the list price of the car as of when they are paid and for future years whilst you continue to use the car.

  https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim24355

 

So 2 possible methods of deduction but the results can be significantly different.

To get at the right answer you may well need to go through the full HMRC process for calculating car benefits. That means studying every page in the following.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim24000

Jeremy535897

jimmo said:

You need to be careful with this.

As your employer charges a trade up price for a better car that is unlikely to be regarded as a contribution solely for private use. If so your contribution will not be deductible from the benefit charge as such. Unfortunately in the following links the text seems to have been duplicated so you get 2 lots of the same text.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim25260

Also see the examples here.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim25261

 

It may however be that your contribution(s) should be regarded as capital contributions. If so they can be deducted from the list price of the car as of when they are paid and for future years whilst you continue to use the car.

  https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim24355

 

So 2 possible methods of deduction but the results can be significantly different.

To get at the right answer you may well need to go through the full HMRC process for calculating car benefits. That means studying every page in the following.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim24000

It would be wise to ask the employer what the effect of "trading up" is on the calculation of the BIK. I think most employers are wise to these traps and ensure that the contribution results in a reduction in benefit.