Moving up into next tax band with existing company car...

[plfrench]

I'm currently nearing the top end of the 20% tax bracket and have a company car. Am I right in thinking that I could actually end up out of pocket in terms of monthly take-home when my salary goes into the 40% bracket due to a doubling of car tax?

I understand from a pure salary point of view that you only pay the additional tax on any earnings over and above the threshold, but can't see how this works with the car.

If this is the case, I'll have to be more careful about negotiating the package for a potential promotion that is being discussed.

[Eric Mc]

Your take home pay will go down if you start paying 40% tax as you taxable gross salary won't have changed. But you will have a better car. So it's up to you to decide whether it is worth it.

[Simpo Two]

The car already exists, it won't be better.

[Jim909]

http://comcar.co.uk/newcar/companycar/taxcalc/g1se...

should give you a rough idea

[PositronicRay]

If you can stick more into your pension pot you will keep out of the 40% band. My company car was obligatory so used it to my advantage.

[oop north]

plfrench said:

I'm currently nearing the top end of the 20% tax bracket and have a company car. Am I right in thinking that I could actually end up out of pocket in terms of monthly take-home when my salary goes into the 40% bracket due to a doubling of car tax?

I understand from a pure salary point of view that you only pay the additional tax on any earnings over and above the threshold, but can't see how this works with the car.

If this is the case, I'll have to be more careful about negotiating the package for a potential promotion that is being discussed.

Why is car tax going to double? Might help if you explained that one first

But don't think you need to ask for a smaller pay rise to keep out of the 40% band - that's not going to help at all! Better having 60% of something than 80% (or even 100%) of nothing!

[Sheepshanks]

plfrench said:

I understand from a pure salary point of view that you only pay the additional tax on any earnings over and above the threshold, but can't see how this works with the car.

It's the same - you'd only pay 40% tax on the amount over the threshold, it doesn't suddenly flip from 20 to 40%.

[CoolC]

Your car is a BIK so is a reduction in your tax free allowance.

If your salary is just about to go over the 40% threshold, then you've probably already been paying 40% on some of your earnings due to the BIK.

I'm a long way from the £42k 40% threshold on salary, but my company car (and fuel card) BIK and reduction in tax free allowance means I already pay 40% on a tiny bit of my income.

[plfrench]

oop north said:

Why is car tax going to double? Might help if you explained that one first

But don't think you need to ask for a smaller pay rise to keep out of the 40% band - that's not going to help at all! Better having 60% of something than 80% (or even 100%) of nothing!

Places like Comcar that was linked above display this sort of thing:

Tax payable @ 20% = £834
Tax payable @ 40% = £1668

If, as others have said, if the BIK is just removed from allowance as normal and it will just be that any additional pay over the threshold is taxed at 40%, then that is fine. It was purely the fact I'd seen tax payable laid out as two amounts that I was worried.

Thanks for the advice guys.

Edited by plfrench on Friday 20th February 17:54

[oop north]

plfrench said:

oop north said:

Why is car tax going to double? Might help if you explained that one first

But don't think you need to ask for a smaller pay rise to keep out of the 40% band - that's not going to help at all! Better having 60% of something than 80% (or even 100%) of nothing!

Places like Comcar that was linked above display this sort of thing:

Tax payable @ 20% = £834
Tax payable @ 40% = £1668

If, as others have said, if the BIK is just removed from allowance as normal and it will just be that any additional pay over the threshold is taxed at 40%, then that is fine. It was purely the fact I'd seen tax payable laid out as two amounts that I was worried.

Thanks for the advice guys.

Edited by plfrench on Friday 20th February 17:54

Ah, OK - makes sense now! What happens is that, effectively, the car taxable benefit is deducted from your tax-free pay. If your current salary and car benefit total just below the 40% threshold, then the pairs (hopefully!) will tip you over. So some of the payrise will be taxed at 20% and the rest at 40% - the car continuing (for comparison purposes) to be taxed at 20% (though in reality the tax calculation does not distinguish between one kind of income and another). So, in other words as I think you have already sussed, the car benefit doesn't suddenly double because you are now a 40% taxpayer