Over £100k - company car vs allowance
Discussion
Hello, I'm in the fortunate position of having been offered a new role which will bump my salary into the mid teens in terms of total cash over £100k and it seems that's prime territory to be shafted by the tax man thanks to the loss of my personal allowance. I'm investigating whether the company run a salary sacrifice/exchange to pile the excess over £100k into the pension pot but wonder whether it might also be worth considering taking a company car rather than the £8k cash allowance to bring down the total exposure. Anyone have any idea about if this would work? I'm guessing I could go for something reasonably PH but decent on emissions like a 330d...Obviously I'll be seeking some proper advice on this if I take the role but it would be good to know if anyone has had experience of this one. Cheers, T.
Pension contribution seems to be a sensible route (or more the worst of two evils).
I would imagine a company car would likely carry a BIK that would also replace some (or all) of the 8k cash benefit (unless they run an Eco fleet!).
I think this 'tax trap' is one of the worst examples of current tax policy. I must be losing them a lot from the self-employed, who choose to pay themselves up to the 100k level and is very punitive to those whose salary is it this region.
The marginal tax rate made on purchases using this money is ridiculous - especially items like petrol etc.
I would imagine a company car would likely carry a BIK that would also replace some (or all) of the 8k cash benefit (unless they run an Eco fleet!).
I think this 'tax trap' is one of the worst examples of current tax policy. I must be losing them a lot from the self-employed, who choose to pay themselves up to the 100k level and is very punitive to those whose salary is it this region.
The marginal tax rate made on purchases using this money is ridiculous - especially items like petrol etc.
You'd have to do a cash or car calculation somewhere like here: http://www.cashorcar.co.uk - I presume (but don't know) that that can cope with the personal allowance restrictions.
What have you done re cars up to now? In my opinion having a company car carries a significant "peace-of-mind" benefit that is hard to put a value on.
What have you done re cars up to now? In my opinion having a company car carries a significant "peace-of-mind" benefit that is hard to put a value on.
I may be wrong but I think salary sacrifice only benefits your NI. My pay slip and P60 calculates my total earnings and then shows the salary sacrifice as a reduction for tax and NI. But the personal allowance appears to be calculated on the full earnings before sacrifice? If anyone knows this to be wrong I'd like to hear about it.
Hungrymc said:
I may be wrong but I think salary sacrifice only benefits your NI. My pay slip and P60 calculates my total earnings and then shows the salary sacrifice as a reduction for tax and NI. But the personal allowance appears to be calculated on the full earnings before sacrifice? If anyone knows this to be wrong I'd like to hear about it.
My P60 makes no mention or reference to my sacricfice at all. Would be interested to know what is the correct way it should be shown.Sacrifice benefits employers and employeee's NI.
Salary sacrifice is exactly that. It reduces your Gross Salary for tax purposes and that means it should also reduce the salary for calculating whether your personal allowances are going to be restricted or not.
Note - salary sacrifice also works in helping you if you are in danger of having to pay back Child Benefit.
I used to be quite wary of Salary Sacrifice schemes for non-tax purposes. However, they are beginning to look even more useful than ever because of the effect they have in delaying personal tax allowance restrictions and clawback of Child Benefit.
Note - salary sacrifice also works in helping you if you are in danger of having to pay back Child Benefit.
I used to be quite wary of Salary Sacrifice schemes for non-tax purposes. However, they are beginning to look even more useful than ever because of the effect they have in delaying personal tax allowance restrictions and clawback of Child Benefit.
Hungrymc said:
I may be wrong but I think salary sacrifice only benefits your NI. My pay slip and P60 calculates my total earnings and then shows the salary sacrifice as a reduction for tax and NI. But the personal allowance appears to be calculated on the full earnings before sacrifice? If anyone knows this to be wrong I'd like to hear about it.
Do you earn over £100K?Thanks all I'll check it out but looks like the pension/salary sacrifice route is worth pursuing as the notion of a 60% rate makes me sick. Fairly ridiculous as we could do with the income with my wife on maternity leave. if there's a way salary sacrifice can be used with a new car I'd be up for that, either way it looks like my venerable M5 will be on its way old though...don't think it would appreciate the daily commute!
The tax impact of salary sacrifice depends on what the salary is sacrificed for - some benefits are more tax and NI efficient than others.
Sacrificing salary into your pension will save tax and NI - it will reduce your gross taxable income so could be a good bet particularly if you are only a little over £100K - i.e. sacrifice down to just under £100K.
Cares are trickier as the value of them as a benefit in kind is included in your taxable income. Some cars are more tax efficient than others so it can be useful, but it's unlikely to make a big difference to your gross taxable income compared with taking the cash.
Other benefits can be more or less tax efficient. This might sound like a daft one but my company allows you to flex your holiday allowance - so you can increase your holiday allowance by sacrificing salary which obviously reduces your taxable income. You could give up some salary in return for a few more days holiday and the net cost to you (once 60% tax plus NIC are taken into account) might not be that much. Work less, earn less.
Sacrificing salary into your pension will save tax and NI - it will reduce your gross taxable income so could be a good bet particularly if you are only a little over £100K - i.e. sacrifice down to just under £100K.
Cares are trickier as the value of them as a benefit in kind is included in your taxable income. Some cars are more tax efficient than others so it can be useful, but it's unlikely to make a big difference to your gross taxable income compared with taking the cash.
Other benefits can be more or less tax efficient. This might sound like a daft one but my company allows you to flex your holiday allowance - so you can increase your holiday allowance by sacrificing salary which obviously reduces your taxable income. You could give up some salary in return for a few more days holiday and the net cost to you (once 60% tax plus NIC are taken into account) might not be that much. Work less, earn less.
NPI said:
Do you earn over £100K?
I do NPI, but only by a few thousand so I still get a small personal allowance. I'm in the area where every £1 of earnings / benefit costs me tax, NI AND loss of allowance. Salary sacrificing doesn't seem to help with my personal allowance. I should state that I only salary sacrifice pension payments at the moment.
Hungrymc said:
Salary sacrificing doesn't seem to help with my personal allowance.
Don't understand why that would be the case, but it's not an area I know much about. As I understand it, a significant point of salary sacrifice for those earning just over £100K is about reducing the impact on your personal allowance.
NPI said:
Don't understand why that would be the case, but it's not an area I know much about. etc
You and me both, it may be the structure of my specific salary sacrifice scheme or the fact that's mine is for a pension. It seems the only benefit is in NI (which is at the lower % anyway at that earnings level)... Time for an IFA.The company also do SS for bike to work etc and I'm pretty sure you save the income tax and NI, as I doing it for a pension it's only the NI I get as a benefit, really looks like it doesn't protect my allowance.
Hungrymc said:
NPI said:
Don't understand why that would be the case, but it's not an area I know much about. etc
You and me both, it may be the structure of my specific salary sacrifice scheme or the fact that's mine is for a pension. It seems the only benefit is in NI (which is at the lower % anyway at that earnings level)... Time for an IFA.The company also do SS for bike to work etc and I'm pretty sure you save the income tax and NI, as I doing it for a pension it's only the NI I get as a benefit, really looks like it doesn't protect my allowance.
ETA: I just re-read your comment "But the personal allowance appears to be calculated on the full earnings before sacrifice?" That might be OK, as long as the personal allowance hasn't been reduced by the effect of your earnings over £100K.
Edited by NPI on Monday 3rd March 22:36
Hungrymc said:
You and me both, it may be the structure of my specific salary sacrifice scheme or the fact that's mine is for a pension. It seems the only benefit is in NI (which is at the lower % anyway at that earnings level)... Time for an IFA.
The company also do SS for bike to work etc and I'm pretty sure you save the income tax and NI, as I doing it for a pension it's only the NI I get as a benefit, really looks like it doesn't protect my allowance.
Pensions attract tax relief in their own right. HOW that tax relief is given varies depending on the way the scheme has been set up.The company also do SS for bike to work etc and I'm pretty sure you save the income tax and NI, as I doing it for a pension it's only the NI I get as a benefit, really looks like it doesn't protect my allowance.
However, if you have agreed to allow the pension to be deducted BEFORE any tax or NI is calculated, (which is the essence of salary sacrifice), then the pension relief SHOULD reduce your salary for Tax Allowance restriction purposes as well as tax calculation purposes.
I would have a serious chat with your employer to find out if they are handling the pension scheme properly.
Thanks NPI and Eric, I'll follow up with my employer and see if there is some mistake.
It all calculates through to my reduced personal allowance (4k) ok when I use the pre sacrifice value. I suspect it's something in the structure of the particular scheme (they go to great lengths to make it clear that the un sacrificed salary is still considered the base salary and would be used in mortgage calcs etc). The firm also explained that the only benefit of Sacrificing for the pension is NI which is only 2% at this salary level.
I'll go and challenge them that it should also be increasing my allowance and will see what they say.
Appreciate the guidance and advice!
It all calculates through to my reduced personal allowance (4k) ok when I use the pre sacrifice value. I suspect it's something in the structure of the particular scheme (they go to great lengths to make it clear that the un sacrificed salary is still considered the base salary and would be used in mortgage calcs etc). The firm also explained that the only benefit of Sacrificing for the pension is NI which is only 2% at this salary level.
I'll go and challenge them that it should also be increasing my allowance and will see what they say.
Appreciate the guidance and advice!
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