Hi all
I would really appreciate some advice on how an electric company car lease will impact my income tax.
I am earning in the £100k to c.£125k bracket where I lose some or all of my personal allowance. My understanding is that my total marginal tax rate for an additional £1 of earnings in this bracket is 63.25%. This is made up of 40% normal income tax, 3.25% NI and an additional effective 20% additional income tax due to losing personal allowance (for every £2 earned, I lose £1 of personal allowance so pay an additional 40p of 40% income tax).
If I take an electric car through my salary sacrifice company car scheme and the salary sacrifice reduces my taxable pay but it still falls in the £100k to £125k range, my understanding is the impact on my take home pay will only be 37.75% of the salary sacrifice amount plus the BIK impact. I believe the BIK impact will be greater than for someone in the 'normal' 40% bracket - I will pay [List price/P11D value] x [2%] x [60%] as the BIK will reduce my personal allowance.
So if for exampe:
Taxable pay excluding salary sacrifice = £110k
Salary Sacrifice for Company Car = £10k
P11D value of car = £50k
Car BIK = £50k x 2% = £1k
Net Taxable Pay = £101k
Take Home Pay with no car
Taxable Pay = £110k
Personal Allowance = £12,570-(£10k/2) = £7,570
less 20% Tax @ 20% x £37,700 = £7,540
less 40% Tax @ 40% x (£110k - £37,700 - £7,570) = £25,892
less 13.25% NI @ 13.25% x £37,700 = £4,995
less 3.25% NI @ 3.25% x £57,300 = £2,104
Take Home Pay = £69,469
Take home pay with car
Taxable Pay = £100k
BIK = £1k
Total Taxable Amount = £101k
Personal Allowance = £12,570-(£1k/2) = £12,070
less 20% Tax @ 20% x £37,700 = £7,540
less 40% Tax @ 40% x (£110k - £37,700 - £12,070) = £20,492
less 13.25% NI @ 13.25% x £37,700 = £4,995
less 3.25% NI @ 3.25% x £57,300 = £1,632
Take Home Pay = £65,340
Difference in take home pay = £4,129
vs £10k salary sacrifice
What have I got wrong? Would love any help!
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