BIK Tax Charge - Does it increase marginal rate of income tax>

Mjmollo

My gross annual income from my employer is just under £100K (£99.5K). I receive a contribution from my employer of approximately £2.5K towards the cost of my medical/dental insurance. This takes my total earnings and BIK liability to £102K.

Can anyone advise whether the £2K in excess creates a loss of personal allowance (reduces from £12,570 to £11,570)?

I know that it would be reduced if it was earnings, I just wasn't sure whether BIK benefits operate in the same way.

Any guidance is gratefully received.

Dazed_and_C0nfused

Mjmollo said:

My gross annual income from my employer is just under £100K (£99.5K). I receive a contribution from my employer of approximately £2.5K towards the cost of my medical/dental insurance. This takes my total earnings and BIK liability to £102K.

Can anyone advise whether the £2K in excess creates a loss of personal allowance (reduces from £12,570 to £11,570)?

I know that it would be reduced if it was earnings, I just wasn't sure whether BIK benefits operate in the same way.

Any guidance is gratefully received.

BIK is just another type of taxable income.

But taxable income isn't what determines your Personal Allowance, it's adjusted net income.

So you would need to add in any other taxable income you have, for example interest or dividends, even if that income is taxed at 0%.

And both Gift Aid and RAS pension contributions reduce your adjusted net income (but not your taxable income).

You cannot deduct net pay or salary sacrifice pension contributions when calculating your adjusted net income.

TheAble

Purely in the scenario op describes though, assuming no additional income or deductions of any kind, would the BIK reduce his personal allowance?

Dazed_and_C0nfused

TheAble said:

Purely in the scenario op describes though, assuming no additional income or deductions of any kind, would the BIK reduce his personal allowance?

As the op hasn't said what their taxable pay is it's impossible to know.

Quite often a salary/income of £99.5k will actually only equate to a taxable amount of say £90k due to pension contributions.  

But if the £99.5k is the taxable amount then yes, any additional taxable income of £502 or more would result in reduced Personal Allowance.

If adjusted net income is £102,000 then the Personal Allowance would be £11,570.

https://www.gov.uk/guidance/adjusted-net-income

Mjmollo

The figure of £99.5K already took account of pension contributions I had paid i.e. I had deducted these from the total earnings figure (circa £4.5K).

My dividend income (£550) is less than the dividend allowance (£2K), whilst my income from interest is slightly higher (£670) than my allowance (£500).

I wasn't aware that any adjustment to the personal allowance is based on adjusted net income as opposed to taxable income.

Dazed_and_C0nfused: Thank you so much for this guidance, it is much appreciated.