Company car on minimum wage?
Discussion
With a few exceptions, the BIK is based on percentage of the list price of the vehicle. The percentage is linked to the cars CO2 rating.
If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
Eric Mc said:
With a few exceptions, the BIK is based on percentage of the list price of the vehicle. The percentage is linked to the cars CO2 rating.
If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
That was my thought too. But how can he pay the £40K+ tax bill with earnings of £10K? I think that was the point of the Q.If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
Simpo Two said:
Eric Mc said:
With a few exceptions, the BIK is based on percentage of the list price of the vehicle. The percentage is linked to the cars CO2 rating.
If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
That was my thought too. But how can he pay the £40K+ tax bill with earnings of £10K? I think that was the point of the Q.If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
He would end up having to make a contribution to the employer. In other words, he would have negative wages.
plasticpig said:
Deva Link said:
Does the £8500 salary lower limit for BIK for employees (not Directors) still apply?
Its not a salary limit. Benefits are included within the £8500 figure. So a Ferrari 458 (for example) would take you well over the £8500 figure.So it seems you could buy yourself a Ferrari and then get the company to pay for all its fuel without incurring any tax liability!
Eric Mc said:
He probably can't - but it is a highly unlikely scenario, to be honest.
He would end up having to make a contribution to the employer. In other words, he would have negative wages.
And that would be illegal, AFAIK. If you're on minimum wage you can't have some taxable benefits like cycle-to-work schemes because it would take you below the minimum wage threshold after salary sacrifice.He would end up having to make a contribution to the employer. In other words, he would have negative wages.
Deva Link said:
plasticpig said:
Deva Link said:
Does the £8500 salary lower limit for BIK for employees (not Directors) still apply?
Its not a salary limit. Benefits are included within the £8500 figure. So a Ferrari 458 (for example) would take you well over the £8500 figure.So it seems you could buy yourself a Ferrari and then get the company to pay for all its fuel without incurring any tax liability!
Eric Mc said:
The £8,500 limit includes the annual value of the benefit in kind. So it is likely that the annual value of the Ferrari itself would exceed the £8,500 threshold.
I know - PP said that earlier, you even quoted him!But (and I didn't know this until I just looked it up) some BIK's are excluded from low earners, and one of them is private fuel.
trashbat said:
If you're on minimum wage you can't have some taxable benefits like cycle-to-work schemes because it would take you below the minimum wage threshold after salary sacrifice.
Hm, in that case HMRC will have to waive their £40K and the employee effectively gets a free car!It can't be that easy...
Eric Mc said:
Simpo Two said:
Eric Mc said:
With a few exceptions, the BIK is based on percentage of the list price of the vehicle. The percentage is linked to the cars CO2 rating.
If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
That was my thought too. But how can he pay the £40K+ tax bill with earnings of £10K? I think that was the point of the Q.If the annual charge for a Ferrari was £40,000, then the employee would be taxed on the equivalent of his salary plus the £40,000 BIK. Most tax would be at 20% with some at 40% There would be no employee's NIC but there would be employer's NIC in the form of Class 1A.
He would end up having to make a contribution to the employer. In other words, he would have negative wages.
Bet it would end up triggering a tax return and payment outside PAYE.
Simpo Two said:
Because taking the tax would drive him below minimum wage, which is illegal. But the whole thing is rather farcical.
At least it looks like it, but nobody's come up with an answer yet...
Yes, but it would be supply of the BIK that was illegal, not HMRC taking any owed tax.At least it looks like it, but nobody's come up with an answer yet...
Edit: let's say you are paid a salary of £10k/year but you work enough hours such that this works out at £5/hr. That rate is below the minimum wage but £10k/year is still enough to get taxed. Which bit of this is illegal? Is it the pay or is it the tax?
Edited by trashbat on Wednesday 4th January 18:26
I think one or both of you are confusing salary sacrifice and BIK tax.
A large salary sacrifice won't work for someone on low pay as it would put them below the minimum wage. Employee Car Ownership (ECO) schemes use salary sacrifice. Each scheme has to be HMRC approved and they did suggest they might stamp them out but that hasn't happened. With Salary Sacrifice there's no BIK tax liability.
As Eric suggests, I also don't see why someone on £10K/yr couldn't have a company Ferrari. Obviously all of their salary would go in tax and they'd get a chunky additional bill, and no doubt some probing questions would be asked.
A large salary sacrifice won't work for someone on low pay as it would put them below the minimum wage. Employee Car Ownership (ECO) schemes use salary sacrifice. Each scheme has to be HMRC approved and they did suggest they might stamp them out but that hasn't happened. With Salary Sacrifice there's no BIK tax liability.
As Eric suggests, I also don't see why someone on £10K/yr couldn't have a company Ferrari. Obviously all of their salary would go in tax and they'd get a chunky additional bill, and no doubt some probing questions would be asked.
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