Company Car tax and the £100k personal allowance threashold

[Steve144]

HI, I wonder if somebody can help.

My salary is £104k. On top of that I have company car benefit of £6k. I have received my tax code for next year which shows that my personal allowance will be £1.5k. The tax man calculates this as being £104k + car benefit of £6k to give gross income of £110k, thus reducing my personal allowance by £5k (I.e £1 for every £2 over £100k). He then also takes my company car allowance of £6k off the personal allowance, so a total reduction of £11k.

My point to them is that this means that I am effectively being taxed one and a half times for the car - i.e. full reduction in personal allowance but also 50% reduction in personal allowance for the car element of the £10k that I am over £100k.

Is this correct? Seems a little unfair to me, but then I guess nobody said tax had to be fair.

[robbob]

Paye is an estimate - particularly with individuals just over 100k it can be very estimated - note you will be obliged to register and complete a tax return if you follow their guidance in this regard - the tax return will get you where you want to be. So never presume the tax code will do the job.

My point to them is that this means that I am effectively being taxed one and a half times for the car - i.e. full reduction in personal allowance but also 50% reduction in personal allowance for the car element of the £10k that I am over £100k.

In theory the hmrc adjustments are probably correct and proper - they certainly seem reasonably logical
(1) You owe tax on your company car - to collect tax on the car benefit they reduce your personal allowance so the tax is collected as if you had that income that is the benefit - a similar adjustment applies for everyone with company car so you don't owe tax at the year end. So the 6k reduction is correct.

(2) Your available personal allowance before the car tax adjust this year will only be 107k being 5k less than normal pa - thats correct due to your 110k income. so without the car benefit that would be 107k - take of the 6k car benefit that needs sepraretley adjusting and the 1k left is correct - there is no 1.5 times taxing as such.


However your margin rate of tax here is 60% on income between 100k and the level where your allowance reduction stops purely down to income being taxed at 40% and an extra 205 being due for reduction in personal allowance - thats just the way it is so practicably speaking i can see how you think you are being taxed 1.5 times as you are actually being taxed 1.5 time your normal 40% rate - its just not strictly speaking double counted as far as hmrc see it!!

from a tax perspective its the Perfect time to put 10k (gross) into your pension pot if it only costs you 4k in real terms to do so - thats how you play the taxpersonage at their own game with these silly marginal rates

[Steve144]

Thanks robbob, that makes sense now. I.e. if I forget about the car benefit but had £6k extra cash instead the effective rate would be 60% which is where I get the 1.5x from. Finally makes sense! Thanks a lot.