Reducing Adjusted Net Income via EV Salary Sacrafice

OutofthisWorld

I've scoured this forum looking at other ANI queries, but my query doesn't seem to have come up, so here goes..

I want to keep my Adjusted Net Income below £100k to ensure ongoing eligibility for tax free childcare and 30 hours free childcare.

My new employer, as well as offering a pension via salary sacrifice also offers the option to get a leased electric vehicle via salary sacrafice, the amount sacrificed will be c. ££800-£900 per month depending on vehicle chosen.

Does the salary sacrafice for an EV vehicle count as lowering my adjusted net income? I can only find reference to pension salary sacrifice reduce ANI.

The BIK on an EV is 2% thus the BK will be in the region of £1200, far offset by the salary sacrificed of £9600-£10,800 per year.

My ballpark figures are:
- salary £100k
- Car allowance £8k
- Bonus £20k per year
- BIK for electric vehicle £1.2k (assume P11d value of £60k)
Total taxable income: £129.2k

Salary sacrafice:
Pension (employee contribution) @19% salary - £19k per year
Electric Vehicle Lease @ £800 - £9.6k

Adjusted net income - £129.2k - £19k - £9.6k = £99.4

I would prefer to use the EV salary sacrafice as a way to reduce my ANI vs increasing my pension to 28% to achieve the same result, as I need a car for work so this will reduce our monthly bills by allowing me to sell my own car and not have the costs of running that.

Thanks for any help out there!

Grumpy_chap

OutofthisWorld said:

I've scoured this forum looking at other ANI queries, but my query doesn't seem to have come up, so here goes..

I want to keep my Adjusted Net Income below £100k to ensure ongoing eligibility for tax free childcare and 30 hours free childcare.

My new employer, as well as offering a pension via salary sacrifice also offers the option to get a leased electric vehicle via salary sacrafice, the amount sacrificed will be c. ££800-£900 per month depending on vehicle chosen.

Does the salary sacrafice for an EV vehicle count as lowering my adjusted net income? I can only find reference to pension salary sacrifice reduce ANI.

The BIK on an EV is 2% thus the BK will be in the region of £1200, far offset by the salary sacrificed of £9600-£10,800 per year.

My ballpark figures are:
- salary £100k
- Car allowance £8k
- Bonus £20k per year
- BIK for electric vehicle £1.2k (assume P11d value of £60k)
Total taxable income: £129.2k

Salary sacrafice:
Pension (employee contribution) @19% salary - £19k per year
Electric Vehicle Lease @ £800 - £9.6k

Adjusted net income - £129.2k - £19k - £9.6k = £99.4

I would prefer to use the EV salary sacrafice as a way to reduce my ANI vs increasing my pension to 28% to achieve the same result, as I need a car for work so this will reduce our monthly bills by allowing me to sell my own car and not have the costs of running that.

Thanks for any help out there!

Yes, you seem to be broadly correct.

The bigger value reason to avoid tipping just over the £100k threshold (rather than to retain the child care) is to avoid the removal of personal allowance which results in an effective tax rate >60%.

If it were me, I'd pay a bit more into pension (subject to contribution allowance) to ensure that errors in calculation don't tip just over the £100k.

Another factor that reduces ANI is if you make any Gift Aid contributions in the year.

Runninglaps

Grumpy chap, I think you might be missing something there.  The £100k mark can be a huge marginal rate for certain families. Take someone with 3 year old twins.  Earn 99k you get  free childcare for 30 hours a week plus a top up to your childcare payments. 

 Based on my payments the 30 free hours saves approx £150 a week over 38 weeks, or £5.7k a year per child, so someone with twins would save £11.4k a year. Plus  25% top up to your childcare payments, worth another thousand or 2.

earn £100k you lose it all, no slow reduction, it’s all gone. 

So for those with 1 or more 3 or 4 year olds it’s huge, much more important than the slowly losing allowance. 

I think it’s an effective marginal tax rate in the thousands of %. It’s a huge cliff edge.

OutofthisWorld

Thanks both, we have a 2.5yo & a 6 month old so the above is a very real developing situation over the next few years! Plus my wife would prefer to keep working (basic rate tax payer) rather than stay at home, hence our ‘dilemma’ as without the tax free/ 30hrs it’s cost prohibitive. 

im aware of the personal allowance drop, it is the childcare that is the biggest real terms impact currently.

my post was specifically around the EV salary sacrifice and if this works in the same way pension salary sacrifice works on reducing ANI, given there are no examples of EV salary sacrifice used in this way on either gov.co.uk, HMRC, childcare helpline (not clued up) or even google!!

My basis is that it does, so thanks for confirming @Grumpy_chap, if anyone else has a contrary view please do share!

I start my new role soon so would like a clear tax plan (first time having to think about this stuff!)

kinger101

Runninglaps said:

Grumpy chap, I think you might be missing something there.  The £100k mark can be a huge marginal rate for certain families. Take someone with 3 year old twins.  Earn 99k you get  free childcare for 30 hours a week plus a top up to your childcare payments. 

 Based on my payments the 30 free hours saves approx £150 a week over 38 weeks, or £5.7k a year per child, so someone with twins would save £11.4k a year. Plus  25% top up to your childcare payments, worth another thousand or 2.

earn £100k you lose it all, no slow reduction, it’s all gone. 

So for those with 1 or more 3 or 4 year olds it’s huge, much more important than the slowly losing allowance. 

I think it’s an effective marginal tax rate in the thousands of %. It’s a huge cliff edge.

You're right that there is indeed a horrendous cliff-edge for anyone with children of nursery age, but if you're ineligible for the 30 free hours, would will still get 15.  So the amount really is £5.7k for the two children, plus up to another £2k per child for childcare.  

I'd personally go for additional pension contributions before looking at EV car schemes, but OP's EV leasing certainly makes sense to me.

amit87

Hi @OutofthisWorld,

Did you not have to also consider the BIK ammount (£1200ish in your example) as an addition so the NAI would be:

My ballpark figures are:
- salary £100k
- Car allowance £8k
- Bonus £20k per year
- BIK for electric vehicle £1.2k (assume P11d value of £60k)
Total taxable income: £129.2k

Salary sacrafice:
Pension (employee contribution) @19% salary - £19k per year
Electric Vehicle Lease @ £800 - £9.6k

+BIK (£1200

Adjusted net income - £129.2k - £19k - £9.6k +£1200= £100.6k?

I see you've been through 1 financial year, how did your calls work out in the end or did you get penalised?

Further do you have any other BIK such as private health insurance or critical illness?

Thanks