Company Car Tax @ 40%

rca779

I have the opportunity to take a company car from 1st April, but I am not sure about the tax implications.

I am looking at a Ford Focus 2.0TDCI Titanium and when I look at the running costs in what car http://www.whatcar.com/car-review-costs.aspx?RT=692&ED=53698&U=0 there is a big difference between the 2 tax brackets.

My problem is that I earn about £500 under the 40% threshold, so at the moment my tax bill would be approx £718 per annum for this car. However my pay review is also due on 1st April and this is going to push me over the threshold and into the 40% bracket. Would I immediately go from the £718 bill to the £1305 bill in this case? Or would I only pay a % of the £600 difference?

If I am liable for the full £1305 tax bill then it almost makes me think of asking not to get a pay rise. Does this make sense?

Can anyone out there clear things up for me?

Dunc6

You need to take into account your personal allowance

If you are earning say £34,000 and you are not receiving any other benefits your taxable pay will be £28,775 (£34,000 less £5,225) therefore you can earn another £5,825 before you pay higher rate (£34,600 less £28,775)

The benefit in kind figure for the car is effectively earnings and therefore needs to be added to your salary.

Eg
salary £34,000
car benefit £3,263
Total £37,263
less pa £5,225
Taxable Pay £32,038

Currently any amounts in excess of £34,600 are taxed at 40%

The personal allowance and higher rate tax bands increase from 6th April 2007.

rca779

Hmm, let me see if I have got this right.

current salary: £39,132 - This is likely to go up again on 1/4/08, say 3%, so another £1,100
Car Benefit: £3,263
Total: £42, 395
Less pa: £5,225
Taxable pay: £37,170

Therefore I would be liable for the full 40% tax on the company car - £1,305, or £109 per month.

The company offer a cash alternative of £4,500 p/a, which I believe will work out at about £225 per month after tax

Therefore I would effectively be worse of by £334 a month!!

Pretty expense to take a Company car then, shame really as I would love a new car!

Dunc6

Yes that looks about right

You may also have a fuel benefit for the company car if your employer pays for private fuel, which will be about £1k in tax at 40%

The main thing to look at is the increase in April of the higher rate band

epididdymus

May be worthwhile checking out dual fuel, ie autogas. The less carbon emitted, the lower the tax band.