Tax Question...Company car etc

[GinG]

Hi All,

Just wanting to try and clear a few things up on tax amounts etc and how things are worked out.

I am picking my car up tomorrow, BIK will be £118 based on 20%.

Basic Wage is £25,000
Car Cash Value is £7,073 (According to Parkers calculator)

Now I get paid commission, and looking at the car allowance within 40% it increases to £236.

My question is what happens to the tax amount if I was to earn more than £10k gross in commission does the car tax automatically increase to the £236 for example?

I know Tax is a bit of a mine field so a very basic answer is all that is needed for now...just working out for monthly financing reasons.

 

[JonJ678]

Talk to an accountant.

Seriously. Company car tax is ridiculous. Expect it to involve the CO2 emissions of the car and the list price of the car when new.

 

[One]

Your basic salary, commission, bonuses, BIK all add up to your total income. That income is taxed at whatever rate it's taxed it. It doesn't matter what order it's taxed in.

 

[HangTime]

if I was to earn more than £10k gross in commission does the car tax automatically increase to the £236 for example?

Assuming you don't have any other sources of taxable income you'd need to earn over ~£17k in commission before you entered a new tax bracket.

 

[GinG]

Assuming you don't have any other sources of taxable income you'd need to earn over ~£17k in commission before you entered a new tax bracket.

OK thanks for that, are you sure the car isn't included within the gross salary package?

Due to mileage company car is the best option and allows me to have a car which I am not personally liable to.

 

[Rifte]

Your basic salary, commission, bonuses, BIK all add up to your total income. That income is taxed at whatever rate it's taxed it. It doesn't matter what order it's taxed in.

THIS^^^

The last two positions I held in the UK gave me a company car. After all was said and done it was costing me close to 350 quid a month in additional tax to have the damn thing.

 

[HangTime]

are you sure the car isn't included within the gross salary package?

No my understanding was that the car is a taxable benefit and that the tax is paid as Benefit In Kind. But I'm not sure as never had a company car.

 

[Ev0]

If you are given a car, or have payments for a car taken out of your salary pre tax, then you have to pay Benefit In Kind tax as said above.

 

[dowie]

Now I get paid commission, and looking at the car allowance within 40% it increases to £236.

My question is what happens to the tax amount if I was to earn more than £10k gross in commission does the car tax automatically increase to the £236 for example?

OK thanks for that, are you sure the car isn't included within the gross salary package?

it is part of your gross pay essentially, it is a benefit in kind so if paid via PAYE you could get a decrease in your personal allowance or you could have to fill out a self assessment form

there is no 'car tax' - if your benefit in kind + income pushes you into the 40% bracket then you pay tax on earnings within that bracket at 40%

Assuming you don't have any other sources of taxable income you'd need to earn over ~£17k in commission before you entered a new tax bracket.

nope, earning 10k in commission would put him just below the 40% bracket currently. A benefit in kind in the form of a car is basically just income and you'll pay tax on it just like any other income.

 

[daver]

In fact with the company car BIK you will get to a lovely (crappy) position with over £10K commission where your marginal rate of tax is 52% because the BIK pushes you into the higher rate threshold but you aren't above the UEL for NI.

 

[GinG]

In fact with the company car BIK you will get to a lovely (crappy) position with over £10K commission where your marginal rate of tax is 52% because the BIK pushes you into the higher rate threshold but you aren't above the UEL for NI.

How do you work this out?

I assumed £25k Basic + £10k commission + £7,073 (Cash equivalent according to government site) = £42,073 so just under the 40% bracket.

 

[GinG]

Salary









+35,000.00

£10,600.00 @ 0% 0.00
£24,400.00 @ 20% 4,880.00
£0.00 @ 40% 0.00
£0.00 @ 45% 0.00
Breakdown
Income Tax on Salary
£35,000.00 £4,880.00 −4,880.00
£0.00 @ 0% 0.00
£7,355.40 @ 20% 1,471.08
£0.00 @ 40% 0.00
£0.00 @ 45% 0.00
Breakdown
Income Tax on Company Vehicle Benefit
£7,355.40 £1,471.08 −1,471.08
£8,060.00 @ 0% 0.00
£26,940.00 @ 12% 3,232.80
£0.00 @ 2% 0.00
Breakdown
NIC on Salary
£35,000.00 £3,232.80 −3,232.80


Total on payslips
£25,416.12

Totals on P11D
£7,355.

 

[daver]

How do you work this out?

I assumed £25k Basic + £10k commission + £7,073 (Cash equivalent according to government site) = £42,073 so just under the 40% bracket.

Because the HR tax bracket is 31785+personal allowance whereas NI UEL is c42400 all PAYE income. If you have no adjustment to you tax code then they line up and so when you move to higher rate tax your ni charge drops to 2% so actually you go from 32% to 42% when you hit the higher rate. Since BIK drops your personal allowance it means you hit the higher rate tax bracket on lower PAYE earnings but it doesn't lower the UEL so you pay 40% tax and 12% NI. In your case anything over c35k PAYE up to about 42k will have an effective tax rate of 52%

 

[Sone]

Car just changes tax code, mine is 26T this year at least it's not a K i suppose.