Company car question - tax band threshold

[crofty1984]

Hello all,
I may be getting a new company car (yay me!) or I may have the option to opt out of it for private use so it's just a work tool*. Of course that means running a cheap knockabout for the less than 500 private miles I do a month. I'm on the border of the higher tax rate (I get £48k salary) and was wondering if I would pay the BIK at the lower or higher rate. It's been confusing me with the change of tax codes, tax free amounts etc.

If I take this example (A mid-range pug 508 fastback picked at random in case you're interested)

2020/21
27% of price
BIK £8,222
20% pm £137
40% pm £274

Does the £8,222 BIK value mean I "earn" £56,222 pa and therefore need to pay the £274 per month cost? Or does the fact that I'm at £48k salary mean I pay the £137? Or somewhere in between? I'm aware if I get a small payrise to £50k this whole conversation is moot.

Thanks,
Dan

*I'm aware that's a whole other can of worms, but that's what work have told me

[xx99xx]

You'd pay BIK at the 20% rate as it's based on your gross income.

[crofty1984]

xx99xx said:

You'd pay BIK at the 20% rate as it's based on your gross income.

Thanks for the info, really appreciate it.

[robbo145]

Have a look on the comcar website for a full breakdown of the tax implications.

[crofty1984]

robbo145 said:

Have a look on the comcar website for a full breakdown of the tax implications.

Cheers - looks like it counts bonuses too. Think my best bet might be just to choose something as BIK friendly as possible, just in case.

[blank]

xx99xx said:

You'd pay BIK at the 20% rate as it's based on your gross income.

You'd only pay 20% on the bit up to £50k, then 40% on the rest.

However things like pensions and any salary sacrifice (e.g. share schemes) can reduce this.

So someone on a £50k salary with 10% pension and £2k salary sacrifice would only earn £43k for tax purposes.

[Dynion Araf Uchaf]

a couple of things you need to be wary of. Company car is classed as part of your overall earnings, so if you are claiming child benefit then the amount you can claim will reduce by the value of the company car.

also the tax is claimed back via your tax code, and the impact on your take home salary will be much larger than you think I reckon your taking home approx 3k, but with a car I can see it being down to 2600.

you don't have to buy another car to prove private mileage you could claim that you use your wife's

in summary company car's are not a perk unless you are doing massive mileage

[TwigtheWonderkid]

Dynion Araf Uchaf said:

in summary company car's are not a perk unless you are doing massive mileage

This isn't true. Company cars can be a huge perk even for low mileage drivers. Or they can be a massive waste of money. It purely depends on the individual circumstances of the employee.

[TwigtheWonderkid]

blank said:

So someone on a £50k salary with 10% pension and £2k salary sacrifice would only earn £43k for tax purposes.

But also only earn £43K for death in service benefits and mortgage applications.

[shep1001]

crofty1984 said:

Hello all,
I may be getting a new company car (yay me!) or I may have the option to opt out of it for private use so it's just a work tool*. Of course that means running a cheap knockabout for the less than 500 private miles I do a month. I'm on the border of the higher tax rate (I get £48k salary) and was wondering if I would pay the BIK at the lower or higher rate. It's been confusing me with the change of tax codes, tax free amounts etc.

If I take this example (A mid-range pug 508 fastback picked at random in case you're interested)

2020/21
27% of price
BIK £8,222
20% pm £137
40% pm £274

Does the £8,222 BIK value mean I "earn" £56,222 pa and therefore need to pay the £274 per month cost? Or does the fact that I'm at £48k salary mean I pay the £137? Or somewhere in between? I'm aware if I get a small payrise to £50k this whole conversation is moot.

Thanks,
Dan

*I'm aware that's a whole other can of worms, but that's what work have told me

Depending on when you register the car, make sure you work out the BIK calculation using the correct CO2 tables....... when they switch to the WLTP test method (April next year onwards I think) for CO2 calms, almost all cars jump up a lot in their banding. Electric cars will carry zero BIK though. Opting out of private use is a nightmare unless you are leaving the car at the office - we have been through this with a few of the people who need a car for their job but don't like the tax levels now as they are getting pretty fruity for anything half decent.

[RammyMP]

TwigtheWonderkid said:

Dynion Araf Uchaf said:

in summary company car's are not a perk unless you are doing massive mileage

This isn't true. Company cars can be a huge perk even for low mileage drivers. Or they can be a massive waste of money. It purely depends on the individual circumstances of the employee.

They’re still a bit of a perk if you’re young and a lower rate tax payer. I calculated for a colleague (who was a higher rate tax payer) with a Merc C class company car would have £700 a month more take home if he went on the car allowance (£6k a year).

[TwigtheWonderkid]

RammyMP said:

TwigtheWonderkid said:

Dynion Araf Uchaf said:

in summary company car's are not a perk unless you are doing massive mileage

This isn't true. Company cars can be a huge perk even for low mileage drivers. Or they can be a massive waste of money. It purely depends on the individual circumstances of the employee.

They’re still a bit of a perk if you’re young and a lower rate tax payer.

Personal insurance costs are a huge factor in deciding if a company car is a good deal or not. A young driver living in a city, with a couple of convictions, an accident in the last couple of years, and no bonus, can easily be asked to pay £3-4K for insurance on a basic car. Then a company car looks like a steal. Also, now we have hybrids and electric cars with low or no BIK hit at all.

Anyone who says a company car is a terrible deal, or a great deal, doesn't understand all the variations involved.

[blank]

TwigtheWonderkid said:

blank said:

So someone on a £50k salary with 10% pension and £2k salary sacrifice would only earn £43k for tax purposes.

But also only earn £43K for death in service benefits and mortgage applications.

That must depend on the company as all our benefits are based on gross salary before pension (optional up to 10% matched) and before any other optional deductions (share save scheme up to £1800 per year).

I've always quoted gross salary for mortgage applications too. They check pay slips anyway so no idea if they've used the lower amounts in calculations for me.

[TwigtheWonderkid]

blank said:

TwigtheWonderkid said:

blank said:

So someone on a £50k salary with 10% pension and £2k salary sacrifice would only earn £43k for tax purposes.

But also only earn £43K for death in service benefits and mortgage applications.

That must depend on the company as all our benefits are based on gross salary before pension (optional up to 10% matched) and before any other optional deductions (share save scheme up to £1800 per year).

I've always quoted gross salary for mortgage applications too. They check pay slips anyway so no idea if they've used the lower amounts in calculations for me.

The idea of salary sacrifice is that you lower your gross salary in return for benefits provided independent of salary. That's different from having a company car and paying BIK, or paying an AVC into your pension out of taxed salary and claiming back the tax via your tax code.

But if you're offered £70K a year, or £60K a year and £10K directly into your pension, or £60K and a car leased for you and insured for you, your gross salary is £60K.

[T1547]

Op - what are your car options available on the company scheme? This will have quite a bearing on how good an option it would be.

The company I work for only offer hybrids and the reduction in tax is significant compared to diesels etc. Just ordered a bmw 330e and costs are £210 pm for 19/20 then £160pm 20/21. I don’t do that many miles (probably 15k p.a) but can’t see how that’s not a cracking deal.