Company Car Tax Question

[mr_nice]

Hey,

Was hoping someone could answer a question for me..

When working out company car tax is it based on the tax rate of your basic wage or does it take bonus into consideration also?

I'm just wondering how it works as may be getting a company car shortly so playing around with options. My basic salary is 20% however I am in a role where I receive a bonus each month which takes me to the higher rate.

Any help appreciated

Nick

[Amateurish]

It's a BIK so added on to your P11D. This means that if you annual income already puts you in the 40% tax band, then your BIK will be taxed at 40% also.

[mr_nice]

Thanks for such a quick answer, although not the one I was hoping for! Will have to stop looking at the Merc C350 and go for something a little more boring!

[XDA]

Your bonus has no effect on company car tax, its based on whether your annual income makes you a 20% or 40% tax payer.

Have a look here: http://www.comcar.co.uk/newcar/companycar/taxcalc/...

Choose the make, model, spec and engine size of your car and it'll tell you how much it'll cost you in tax.

I've done a quick check of a MERCEDES-BENZ C-CLASS SALOON NEW C 350 CDI BLUEEFFICIENCY SPORT EDITION 125 G-TRONIC, and at 20% it'll cost you £1738 in tax per year, rising to £1883 in 3 years time.

Check out my link above, it'll give you a rough idea of costs.

[Welshbeef]

If your bonus pushes you from 20% to 40% it most certainly does have an impact on what co car tax you will pay.

Basically howit would be taxed is on 20% but then at the end of the year depending on how your total income is if it's over the 40% threshold. You would then need to complete a self assessment on an annual basis to pay the additional unpaid and due tax.

[mr_nice]

ETA - please excuse spelling, typing on the iPhone.

Welshbeef - if I understand you correctly I would be taxed at lower rate throughout the year than have to pay any excess through self assessment? Unlike PAYE tax which (normally) does a pretty goo job of working it out throughout the year?

I think this is the bit I don't undertand as on a month by month basis I could appear to be a 20% or 40% payer depending on my performance. For example getting 0 bonus in Sept = 20% rate where as I could get £3k commission in Oct = 40%.

I was wondering if the tax would change month to month as PAYE does howeve you post leads me to believe it's 20% throughout the year then 40% if need be through SA. Have I understood that correctly?

Thank again for everyone help. Next post will of course be the obligatory am I too young (29) for a M Sport 5 series

Edited by mr_nice on Wednesday 7th September 23:14

[Welshbeef]

What payroll will do is they know your base salary for the year and at day one will be on 20%. Now there could be a time whereby the bonuses earned in the tax year to date and salary in the tax year to go are above 40%. At that point they would change it to 40% and would likely change your tax code for the following tax year to recover the underpayment.

[mr_nice]

Now THAT makes sense! Thanks WB.

[Eric Mc]

The annual value of the company car selected by you is asertained by finding out the list price of the specific make and model of the car plus any accessories paid for by the employer and added to the car at the time of the purchase. A multiplier is applied to the combined list price of the car and accessories. This multipler is based on the CO2 emmission rating of that specific car.
If the car is acquired part way through the tax year, the annual value is time apportioned for the number of days the car was made available to the employee.

This annual value is then added to your overall salary for the year and you will be taxed as if that annual value is just extra gross salary. If you already are a higher rate taxpayer because of your normal gross salary and salary bonuses, then the Income Tax on the company car will also be charged at the higher rate of tax.
The annual value of a car on its own could be enough to push your overall income levels into the higher rate tax bands.
The current salary level you can earn up to the higher rate tax band is £42,475.

If at all possible, HMRC will collect the extra tax (whether it is Basic Rate or Higher rate tax) by adjusting your PAYE Tax Code. Therefore, once you start using the company car, it is vital that HMRC amend your code as soon as possible, certainly before the end of the current tax year.

If for whatever reason they do not change the code (it does happen sometimes), they will eventually realise that you have not been paying sufficient tax to cover the company car and they will collect it from you by whatever means possibel.

In these circumstances there are three entities that need to make sure everything is done correctly -

HMRC
your employer
you

But HMRC will hardly ever accept that any errors were their fault so it is really up to you as the taxpayer to make sure the company car tax is handled correctly because ultimately it is you they will come after for any unpaid tax.

[Evo141n]

Is the BIK tax fro the car collected before or after normal tax and NI?
ie say....
Monthly Salary £2000 - say £100 Bik tax = £1900 giving a £475 tax & NI bill and leaving £1425 or...

Monthly Salary £2000 - £500 tax & NI - £100 Bik tax leaving £1400

Guess the question is over the £25?

[Eric Mc]

Evo141n said:

Is the BIK tax fro the car collected before or after normal tax and NI?
ie say....
Monthly Salary £2000 - say £100 Bik tax = £1900 giving a £475 tax & NI bill and leaving £1425 or...

Monthly Salary £2000 - £500 tax & NI - £100 Bik tax leaving £1400

Guess the question is over the £25?

If you have a salary of £25,000 and a company car with an annual value of (say) £5,000, the monthly PAYE calculated on your salary will be calculated as if your salary was actually £30,000.
There is no Employee's NI charged on company cars - although employers do pay an annual Class 1A NI charge on company cars. They pay this separately and it has no direct impact on your monthly pay.