Child benefit and salary sacrifice car scheme. help please.

dunncraig · 9 January 2013 at 11:37PM

Hi as a result of the recent changes to child benefit my family will lose all entitlements. We are trying to mitigate this by utilising a salary sacrifice car scheme. Hmrc have been use full as usual so I thought I would seek some alternative help!

I shall round up figures for ease of calculations.

Gross salary 65000
Final salary defined benefit pension 4500 (Smart pension) already on salary sacrifice taken from gross leaving a salary of 60500

My question is if I join the work salary sacrifice low emmision car scheme and take a car with the following sacrifice figures would this lower my adjusted net income ani to enable me to claim some child benefit?

Monthly Gross Salary Sacrifice £464.99
National Insurance Saved on Salary:(£9.30)
Tax Saved on Salary: (£186.00)
Monthly BIK: £139.90
Effective Net Monthly Cost*: £409.59

My understanding from what I've read is that in theory my gross salary for taxation would drop by the value of gross salary sacrifice = 5579.88(12*464.99) so my ani would be =54920.12(60500-5579.88)

Do I add bik amount onto this or is then deducted via my tax code?

Really confused by this hope someone can help

Thanks in advance.

grey_gym_sock · 9 January 2013 at 11:53PM

you need to add on the taxable benefit.

the "monthly BIK" figure is not the taxable benefit, it's the tax you pay on the taxable benefit (at 40%, given you income). working backwards, the taxable benefit must be £139.90 / .40 = £349.75 per month.

so your annual adjusted income goes back up by 12*£349.75 = £4197 which makes it £59117.12.

so not a huge gain on the tax / child benefit position.

dunncraig · 10 January 2013 at 12:25AM

Hi I'm not sure exactly how it works but it says the taxable bik is 13%.
I thought the salary sacrifice would lower my salary enough to gain some child benefit.
Thus is why I am confused.

xylophone · 10 January 2013 at 12:40AM

http://www.money.co.uk/article/1008492-changes-to-child-benefit-how-to-keep-your-payments.htm
might be worth a read.

grey_gym_sock · 10 January 2013 at 12:57AM

the salary sacrifice does still lower your salary a bit, but when you take the taxable benefit into account, it's less effective than e.g. making higher pension contributions.

the taxable benefit is calculated as a percentage of the P11d value (list price) of the car.

this percentage ranges from about 10% to 35%, depending on the CO2 emissions of the car. my guess is that that's what the 13% means.

if this is correct, it implies that the car has quite low CO2 emissions. and a list price of about £4197 / 0.13 = £32284 ... hmmm, which is quite high for that monthly rental, so i wonder if i'm barking up the wrong tree somewhere ...

dunncraig · 10 January 2013 at 12:05PM

Hi thanks for the replies

Just spoke to hmrc and they have confirmed the following I think....

To find out my adjusted net income(ANI) I have to start with my gross salary after pension(already on salary sacrifice) has been taken then deduct car scheme salary sacrifice and then add on the p11d bik figure to give me my ANI. So

Salary after pension is 60500
Less car salary sacrifice 5579 leaves 55000 give or take.
Then add back on the p111d BIK figure for the year of
1678.80

Meaning I would still be eligible for child benefit on the remaining 3300? If my ANI figure was bow 56700 ish.

Does this make sense to anyone or I am I just playing with numbers to make them fit?

Cheers

grey_gym_sock · 10 January 2013 at 12:15PM

when you said (in post #1): "Monthly BIK: £139.90" ... is that (a) the monthly benefit in kind, or (b) the tax on the monthly benefit in kind?

from the context of post #1, i thought it was (b).

your calculation in post #6 seems to assume it is (a).

WestonDave · 10 January 2013 at 12:35PM

I wonder if you need to look at the end results rather than targetting preserving child benefit.

Assuming your figures are right, you will still lose around 65% of your child benefit. At the same time you will be paying for a car which you probably don't need.

Taking your figures - you will lose gross salary but save tax and national insurance - £465-9-£186 = £270. However you will pay tax on the benefit in kind at 40% (40% of £140 is £56) So the total loss in take home pay will be £326 per month or £3912 per year.

On the other hand you will save 35% of your child benefit - one child that amounts to £370 per year, plus £244 per additional child. You'd need 15 kids to get close to breaking! OK so you get a new car, but £4k per year is a lot of depreciation on a car - if you bought something nearly new you'd probably end up with more cash in hand that under your proposals.

If you put the £465 per month into the company pension, you'd save the same tax and NI so would only be £270 per month worse off in cash terms (i.e. £56 better off from that) and your adjusted income would then be £54920 which would mean salvaging 50% of your child benefit so you'd get another £158 per year for the first child and £104 per year for your subsequent children. You'd also be keeping the money in your pension rather than wasting it on a new car - for driving around you could easily pick up a cheap nearly new car.

dunncraig · 10 January 2013 at 5:01PM

Hi Guys

Thanks for your help. I have finally got to a real computer rather than my phone so i can type more and give more information.

Basically I need to replace at least 1 car this year and possibly 2. I currently commute witha round trip of 72 miles each day so would need something more ecconomical(60mpg) than i currently have(40mpg).

I was trying to work out the best way of doing this finnancially for me. The benifit of the salary sacrifice car is that everything is included apart from fuel so this needs to be factored into my decision.

The BIK as far as i am aware is the monthly ammount that i would pay ontop of the lease cost(therfore the so in the example above it would be £139.90/month making a NET loss of salary of £409.59/month.

I could have this wrong but after your help today i think i might have finally got my head round it.

So if i salary sacrifice £5579 GROSS this would drop my salary to approx £55000. But i would then have to add on the BIK figure of £139*12=£1668 (i thought it was just the taxable figure i had to add on not the full figure) so as you say i would save 35% of child benifit. I also have young kids so in total nearly £2500 year.

I appreciate the point about the pension contributions and i admit that is also tempting. However i am on a Final Salary Defined Benifits scheme already so perhaps anymore is overkill. I think if i wanted to add more i would have to start a new private pension(another can of worms). But on the subject of pensions my wife does not have a pension could i set one up for us jointly or in her name but i pay the contributions from my salary? She is self employed and has a few small pensions with different companies but has recently said she would like/needs her own. My pension at work has healthy life insurance and spouse/kids pension attached.

Again more questions than answers from me but your thoughts are appreciated.:T

grey_gym_sock · 10 January 2013 at 5:36PM

as i said before, if you are paying £139 BIK tax, then BIK itself, i.e. the benefit which you are paying tax on, is not £139 but £349.

pension contributions from your salary can only go into your pension, not your wife's.

dunncraig · 10 January 2013 at 7:49PM

gym sock. Sorry i misunderstood what you were saying. So do i have to declare the full BIK on my P11d form? which would form the basis of my Self Assesment.

The impression i got from HMRC was that it was only the taxable element. Think i need to speak to them again.

Child benefit and salary sacrifice car scheme. help please.

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