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Where Taxpayers and Advisers Meet

Electric Company Car Impact on reduced personal allowance

ChilliDog
Posts:2
Joined:Wed Jul 20, 2022 5:12 pm
Electric Company Car Impact on reduced personal allowance

Postby ChilliDog » Wed Jul 20, 2022 6:36 pm

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!

darthblingbling
Posts:698
Joined:Wed Aug 02, 2017 9:09 pm

Re: Electric Company Car Impact on reduced personal allowance

Postby darthblingbling » Thu Jul 21, 2022 12:32 pm

You've a decent grasp, but that's a pretty hefty sacrifice for an electric car so don't know how relevant the example is.

Might want to cost up leasing the car yourself and estimating what you can claim back tax and NI free as business mileage based on your employer's policy.

ChilliDog
Posts:2
Joined:Wed Jul 20, 2022 5:12 pm

Re: Electric Company Car Impact on reduced personal allowance

Postby ChilliDog » Fri Jul 29, 2022 9:44 am

Thanks for the advice! Yeah agree the salary sacrifice is pretty hefty but it's actually about what I've been quoted for cars in the £50k to £60k list price range. It does include insurance, maintenance etc but still very expensive. I think they have priced high knowing that people will still take it because if the tax benefits on electric company cars!

Unfortunately don't do any business mileage as it's mostly commuting.

Also related - we're soon going to have a baby at nursery and see that it's possible to get 20% tax relief on childcare costs but only if both parents earn under £100k. If I use a combination of pension contributions and company car to keep my taxable pay just under £100k do you think we will qualify for this? (my partner is also under £100k)

Thanks!


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