Company Car Tax Query

[JagJag363]

Hi All,

My basic is in the 20% tax bracket.

I get paid a quarterly bonus which combined with my basic will push me into the 40% bracket if projected out.

But then the month after my basic will be back at the standard 20% rate, at the end of the 4th quarter my total earned could potentially be in 40% bracket.

The question is, as soon as i get my bonus in the first quarter will I have to pay the upper company car BIK tax for the rest of the year? Even though my salary will go back to a 20% tax amount the month after (and there's a chance, that at the end of the year i won't have earned more than 45001)

Any help would be appreciated as I can't quite get my head around it.

[quinny100]

No, you won’t have to pay higher rate if you go over the threshold for one month.

Your tax code will be adjusted to take the BIK value of the car into account.

This means the amount you can earn before tax is deducted is reduced, so if the car BIK is 4800 it’s like you have earned £400 a month before your salary is paid.

[JagJag363]

quinny100 said:

No, you won’t have to pay higher rate if you go over the threshold for one month.

Your tax code will be adjusted to take the BIK value of the car into account.

This means the amount you can earn before tax is deducted is reduced, so if the car BIK is 4800 it’s like you have earned £400 a month before your salary is paid.

Great thanks, so let's say at the end of the year I got a bonus that put my earnings above £45001 for that tax year, would I have to back pay the upper limit company car tax, or would it just be for the following year?

[hepy]

JagJag363 said:

Great thanks, so let's say at the end of the year I got a bonus that put my earnings above £45001 for that tax year, would I have to back pay the upper limit company car tax, or would it just be for the following year?

In my experience, they simply put it on your tax code for next year.

[craig1912]

There isn’t such thing as “upper limit company car tax” As stated above your car is just treated as additional income. If you underpay tax in the current year then generally your tax code is adjusted for next year.

[Eric Mc]

HMRC is supposed to have a system whereby Company Car BIKs are matched to the correct tax year. That means they should be collecting the correct income tax from your salary ona real time basis for the car you have right now.

Being HMRC, of course, that doesn't always happen.