BIK when on cusp of 20%/40% threshold
loofer
Posts: 562 Forumite
in Cutting tax
Another BIK thread...
Hypothetical figures but it'll help me understand better.
If I have a salary of £46,350, which happens be be the max on the basic 20% threshold what happens if I take a company car with a BIK of say £100 month?
a) Is it assumed my 'salary' is now £46,350 + £1200, so I pay 40% on the £1200 because it's tipped me into higher rate threshold?
Or
b) Is the tax rate of my actual salary used and therefore I pay 20% on the BIK element?
Or
c) Some other equation, such as they reduce my PA by £1200? In which case
New PA =11850-1200=10650
New PA + Basic threshold = 10650 + 34500=45150
higher threshold breached by= 46350-45150 = 1200
***********************************************
Although in reality my salary exceeds the basic threshold, I've managed to stay in 20% bracket by using marriage allowance, increasing pension contributions, paying charity through PAYE, buying company shares through salary sacrifice.
Hypothetical figures but it'll help me understand better.
If I have a salary of £46,350, which happens be be the max on the basic 20% threshold what happens if I take a company car with a BIK of say £100 month?
a) Is it assumed my 'salary' is now £46,350 + £1200, so I pay 40% on the £1200 because it's tipped me into higher rate threshold?
Or
b) Is the tax rate of my actual salary used and therefore I pay 20% on the BIK element?
Or
c) Some other equation, such as they reduce my PA by £1200? In which case
New PA =11850-1200=10650
New PA + Basic threshold = 10650 + 34500=45150
higher threshold breached by= 46350-45150 = 1200
***********************************************
Although in reality my salary exceeds the basic threshold, I've managed to stay in 20% bracket by using marriage allowance, increasing pension contributions, paying charity through PAYE, buying company shares through salary sacrifice.
0
Comments
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The answer is a), the benefit is part of your income so if that takes you £1200 above your higher rate limit then higher rate tax is charged on the £1200.
But you are mistaken about some of the other things mentioned.
Your Personal Allowance can only be reduced if your income exceeds £100,000. You may be confusing your Personal Allowance and your tax code.
If you receive Marriage Allowance it cannot ever keep you in a particular tax band. Marriage Allowance (for the receiver) does not entitle you to any additional allowance, it is simply a tax credit off whatever your tax bill is calculated to be.
If you are liable to higher rate tax you will lose Marriage Allowance for that year.0 -
Thanks, I'm sure when you get the letter from gov that tells you your new tax code they show its as PA + MA to give you a new PA, reflected in tax code. Will have to check it next time.Dazed_and_confused wrote: »The answer is a), the benefit is part of your income so if that takes you £1200 above your higher rate limit then higher rate tax is charged on the £1200.
But you are mistaken about some of the other things mentioned.
Your Personal Allowance can only be reduced if your income exceeds £100,000. You may be confusing your Personal Allowance and your tax code.
If you receive Marriage Allowance it cannot ever keep you in a particular tax band. Marriage Allowance (for the receiver) does not entitle you to any additional allowance, it is simply a tax credit off whatever your tax bill is calculated to be.
If you are liable to higher rate tax you will lose Marriage Allowance for that year.0 -
It does show it like that in your tax code but that simply means you have a higher tax code number. Not a higher Personal Allowance.
When they review things at the year end know your actual income for the year they will check if you are liable to higher rate tax and remove the Marriage Allowance if so.
If not they will calculate your liability using the Personal Allowance and deduct £238 (current year figure) off whatever you is due overall for that year.
For many it won't make any difference but the fact is as the receiver you are not receiving any extra allowances so MA cannot alter your tax band from higher rate to basic rate.0 -
Dazed_and_confused wrote: »It does show it like that in your tax code but that simply means you have a higher tax code number. Not a higher Personal Allowance.
When they review things at the year end know your actual income for the year they will check if you are liable to higher rate tax and remove the Marriage Allowance if so.
If not they will calculate your liability using the Personal Allowance and deduct £238 (current year figure) off whatever you is due overall for that year.
For many it won't make any difference but the fact is as the receiver you are not receiving any extra allowances so MA cannot alter your tax band from higher rate to basic rate.
Even the Gov's own website refers to ti as a transfer of personal allowance.0 -
Low Incomes Tax Reform Group explain it here,
https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-allowances-am-i-entitled#toc-what-is-the-marriage-allowance-0
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