really confused with my tax situation

skint2008

hi
please can someone help me here
i earn 38k p/y and have a co car benefit of £3.5K, i can potentialy earn £4k a year bonus (not guarenteed) so therefore after my personal allowance and pension contributions of £1200 per year am I still in the higher bracket?

thefunkygibbon

sorry cant help, but i came here to ask the same question. i've been offered a job for 34k + 4k car allowance + 2k bonus. where would that leave me in the tax brackets? how does the car allowance/bonus (not guaranteed) get taxed?
thanks

jennifernil

Even if it does take you into higher rate tax, it is only the amount that falls into the higher rate band that you will be paying 40% tax on. Surely 60% of an increase is better than no increase at all.

I think car benefit is taxed by adjusting your code number. Any bonus would be added to salary and taxed in the usual way.

CLAPTON

do remember that 'standard tax' is 22% and you pay 11% NI i.e. a margin rate of deductions is 33%.
once you get to 40% tax you only pay 1% NI so the margin rate of deductions is 41% so not so much difference and of course you are only paying on the 'extra ' income and not the whole amount...

sunshinejoclaire

only for the next wouple of weeks Clapton...

Pennywise

CLAPTON wrote: »

do remember that 'standard tax' is 22% and you pay 11% NI i.e. a margin rate of deductions is 33%.
once you get to 40% tax you only pay 1% NI so the margin rate of deductions is 41% so not so much difference and of course you are only paying on the 'extra ' income and not the whole amount...

Yes, but when a company car is involved the situation is different. There is no employees NIC on the company car benefit, but there will be 40% tax, so the marginal increase in tax will be 18% for 2007/8.

For 2008/9 the marginal tax increase will be even more as the basic rate tax drops to 20%, so the difference between basic and higher rate tax increases to 20%. Also the NIC upper earnings threshold is raised, so more NIC will also be payable on the wage + bonuses, so the OP could theoretically be paying a combined rate of 51% tax and NIC on the extra pay.