Avoiding 40% tax bracket / Car allowance

CashStrappedTeen89

I’m moving to a different company in the next few months, currently I’m a share holder (B shares) that gets paid with a mix of salary and div’s, (salary is basic and rest dividends). I come home with about £2700 each month.
I also get a company phone and car.
I pay my tax every 6 months according to my accountant which averages around £700-£800 so effective pay per month is about £2550 after tax.

In my new position it will be senior management but not a shareholder (yet) so I will be back to paying normal tax rates.

The offer is £50,000 per annum with a £6,000 car allowance and company phone, excluding potential OT or bonus.

Based on my tax code (1236L), 5% pension contribution, £56,000 going through MSE salary calc means I come home with around £3,200-£3,300 after tax so a decent increase.

My query's relates to both car allowance and reducing tax.

First are my calculations correct above?

Secondly at £56,000 I’m cutting into the 40% tax bracket, is it worth investing more into an ISA, pension or something else to not waste that extra tax at 40%?

Lastly how does car allowance work, am I reading right it’s just basically extra money that’s effectively salary and taxed the same?

Moving from a company car back to a owned car is proving daunting especially as I don’t have much in terms of savings (paid all debt off bar mortgage). So I’m just figuring out the best way to move forward, loan, HP or PCP and then timing to order.

I am trying to sort a meeting with an IFA but thought as MSE community is awesome someone may be able to clear some things up for me who’s been through it.

Dazed_and_C0nfused

No one can say if your calculations are correct from the info provided.

What method will be used to make the pension contributions?

Usually it is either net pay or relief at source.  Or possibly salary sacrifice.

Contributing more to a pension will likely save you tax.  Contributing to an ISA won't.  Maybe charitable payments under the Gift Aid scheme will also save you tax.

Car allowance is just pay by another name.  With the likely downside that's it's not pensionable.

Is your existing company car a payrolled benefit?

Grumpy_chap

Car Allowance is treated as just more pay for the income tax and NI point of view.  

£56k salary is about £3,400 per month take home (assuming England and no student loan).  Your figure of £3,200 - £3,300 after tax is likely correct as you will have taken into account any specifics, pension contributions, your personal tax code and such like.  I simply used default position.

More pension contributions is the most obvious way to avoid higher rate tax.

Funding the car will depend on any restrictions the new employer imposes on choice of vehicle and the time-scale you need a car to be available.  Lead times for factory order cars are extended across the board at present.

CashStrappedTeen89

Dazed_and_C0nfused said:

No one can say if your calculations are correct from the info provided.

What method will be used to make the pension contributions?

Usually it is either net pay or relief at source.  Or possibly salary sacrifice.

Contributing more to a pension will likely save you tax.  Contributing to an ISA won't.  Maybe charitable payments under the Gift Aid scheme will also save you tax.

Car allowance is just pay by another name.  With the likely downside that's it's not pensionable.

Is your existing company car a payrolled benefit?

Pension will be paid straight out of salary, I’ve not had it through yet but there is one.

Current car is is paid by current company I’m primary user and pay BIK but is covered under fleet insurance and maintenance and used by other staff.

CashStrappedTeen89

Grumpy_chap said:

Car Allowance is treated as just more pay for the income tax and NI point of view.  

£56k salary is about £3,400 per month take home (assuming England and no student loan).  Your figure of £3,200 - £3,300 after tax is likely correct as you will have taken into account any specifics, pension contributions, your personal tax code and such like.  I simply used default position.

More pension contributions is the most obvious way to avoid higher rate tax.

Funding the car will depend on any restrictions the new employer imposes on choice of vehicle and the time-scale you need a car to be available.  Lead times for factory order cars are extended across the board at present.

Apologies, it is England and no student loan.

I did and based it on 5% contribution which I’m hoping to increase anyway.

No restrictions have been advised nor I expect will be applied, I expect I’ll look into an EV vehicle but doubt new. Current vehicle is a Tesla, definitely can’t afford that directly as I’m primary earner of household.

I suppose the next step is working out how much extra pension contribution is required to bring it under and how that will effect the car allowance as 20 > 40% tax means going from roughly £350 to £275 available after tax and NI.
Shame there seems no way to be able to use more of the amount for a vehicle considering in my instance it will all be used for a vehicle most likely (the 6K allowance that is). 

Dazed_and_C0nfused

CashStrappedTeen89 said:

Dazed_and_C0nfused said:

No one can say if your calculations are correct from the info provided.

What method will be used to make the pension contributions?

Usually it is either net pay or relief at source.  Or possibly salary sacrifice.

Contributing more to a pension will likely save you tax.  Contributing to an ISA won't.  Maybe charitable payments under the Gift Aid scheme will also save you tax.

Car allowance is just pay by another name.  With the likely downside that's it's not pensionable.

Is your existing company car a payrolled benefit?

Pension will be paid straight out of salary, I’ve not had it through yet but there is one.

Current car is is paid by current company I’m primary user and pay BIK but is covered under fleet insurance and maintenance and used by other staff.

Unfortunately that doesn't really clarify things.

Paid straight out of salary could be any of net pay, salary sacrifice or (from post tax pay) relief at source.  They all work differently and until you know which is being used you cannot know the tax impact.

With the company car you need to know why your tax code is so high.  It could be because you are paying tax via payroll but if not you would expect to have a much lower tax code.