Income tax and Car allowance - Tax trap

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81917081#Comment_81917081

That table seems to be incorrect.

It is not to do with the age of the car - I have a 2023 TM3 and suffer BIK.

The age of the car makes a slight difference as the list price varies.

I can only imagine the table was prepared before Autumn Statement 2022.

molerat

Thanks again - all really useful. I'm intrigued by the "relief at source contributions" - who qualifies and how do you apply. FYI i'm part of a big company standard payment plan.

RAS contributions are down to the provider if they work that way. You need to ask them if they will accept personal contributions as RAS and add the tax credit. If they don't you would likely be better opening a SIPP as that would be automatic RAS and the additional tax could simply be reclaimed via the on line form or SA, claiming the full range of tax rates back with a non RAS provider is an uphill struggle as HMRC usually don't understand. Paying from payroll - provided it is net pay or sal sac - would be the simplest method as there would be nothing further to claim.

spdavies

https://forums.moneysavingexpert.com/discussion/comment/81916003#Comment_81916003

Hi Grumpy chap - i've tried to use your detailed explanation to work things out for myself based on your guidance and using the Car offer above. Would you agree with my Scenarios calcs below?

As to the question about changing the car allowance for a company car. It is more complicated that a very short answer so I will try to do my best and also try to keep it simple.

- You currently receive £550 per month car allowance. That is £6.6k per year, subject to NI and income tax at the appropriate marginal rates. - This stays the same

- If you give up the car allowance for a company car, your salary (hence your ANI) reduces by that £6.6k. OK understood

- You then get a company car which will be subject to BIK taxation. Your ANI will then increase by the relevant BIK. How much the BIK is will depend greatly on the car - list price and fuel type. In this example £0

- The most tax advantageous type of car will be fully electric to get the lowest BIK. Assume an EV with a (P11D) list price of £40k. 2026-27 will be at 4% BIK, so £1.6k. - N/A

- Switching from the current car allowance (£6.6k) to the £40k EV (£1.6k) will reduce your taxable income by £5k (£6.6k - £1.6k). OK

So in my case (simplifying without pension deductions etc).

Scenario 1: £110k salary & Bonus. Plus Car cash allowance take ANI to £116.6k. Take home pay is therefore:

£78,189pa (£7.54k@20%, £26.528k@40%, Nat ins £4.34k) (but i then pay £330pm for a car) so effective = £74,229 take home

Scenario 2 :£110k salary & Bonus. No car cash allowance takes ANI to £110K. No BIK increase. But trade up monthly of 151pm =£1.8k so total ANI to £108.2. Take home pay is therefore:

£73,317pa (£7.54k@20 %, £23.168k@40 %, Nat ins £4.17k) with car included so £73,317k take home

Numbers not perfect - but in big handfuls this tells me i'm better off keeping the cash rather than taking the car??? Am i broadly correct??

Thanks again to all

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81918967#Comment_81918967

I do not believe that you are broadly correct as you are relying on the graphic provided by someone declaring a zero-BIK for the EV as being correct.

The BIK rate for an EV in 2025-26 is 3%.

Can you ask the people who produced the graphic where the data originated from, and when that data was set out?

spdavies

ok I will do thanks but for example purposes are my calcs correct? Even if we added a say £1.6k bik then am I right overall that I’m better just taking the cash?