Car lease scheme & tax

gregster10217

I'm looking at getting a car through my work lease scheme and was wondering if there is anyone out there that can provide me with an answer to this?

The monthly deduction gets deducted from my salary before tax is applied, so, does that mean that as a lower rate tax payer, I can effectively take 20% off that figure? I know that I have to pay a benefit in kind tax of 13% as it's a diesel vehicle.

My payroll manager is away for over a month and no one in the office is able to answer the query, and with delivery times of up to 20 weeks on Audis currently, we need to order soon to replace of car in July.

If you need some figures to work with, the price of the vehicle is £25,600, monthly rental of £355.

Is it the same as the bike scheme, where the rental is effectively tax free, but this time I've got to add on BIK tax?

Not sure if that makes sense, but those in the know should understand what I'm asking.

Thanks

Pross

I'm a bit confused here. Are you getting a company car (i.e. the company provides the car for you 'free of charge') or are you leasing through your company but paying the cost yourself?

If it is the former then it gets classed as a taxable benefit and your tax code gets amended accordingly. The amount of BIK you pay is dependent on the C02 emissions of the car.

If the latter scenario (which seems to be the case from the original post) I'm not sure what the situation is but would be surprised if it counted as BIK as you would be paying the rental costs yourself.

Pross

Sorry, I think I understand it now. Are you getting paid a car allowance in any case? If so you basically lease a car at the same rate as your allowance on a salary sacrifice system so don't pay tax or NI on that money. However, the car gets treated as a BIK as though it were a company car in the traditional sense. You are therefore going to pay BIK based on the CO2 emissions (so it may be more than the 13% depending on the car you get, be careful as the maximum CO2 in the lowest band is dropping over the next few years!). As it will be treated as BIK your tax code will be used to make the necessary adjustment on your salary.

My very basic calculations (please don't rely on these and get someone with some accounting knowledge to check!!!)

Assumed currently on a salary of £30k + £355 per month car allowance paid through salary. No benefit in kind so standard tax code. Take home pay per month £2130.30 out of which you have to pay for your car.

By salary sacrificing the car allowance and with a BIK of £3328 (13% of £25,600) being deducted from a standard tax code the take home pay would be £1830 per month but your car is paid for.

So what you would have to decide is whether the car is worth £300 per month to you?

gregster10217

Thanks pross. It's not a company car, but a personal car obtained through/by my employer, and paid for by salary sacrifice, like I did with my bike last year. It's classed as a 'green car scheme' as the emissions have to be below 120. The car we're been quoted on is a 2.0 TDi Audi A3 sportback with a few extras. Nice car and unbelievable that the emissions are that low on that engine. It's a fully serviced lease so no servicing costs, tyres or road tax to pay for either. We currently pay £300 for our car which has a balloon payment due in July, but we're not going to keep it, so the £300 for the lease car is ok plus we've got no other costs except fuel and insurance, which we pay anyway. I don't really want to pay more than I am now, but the tax side baffles me with regards to what benefit there is tomit being taken before tax gets paid, adding BIK back on etc etc

P_Tucker

Lets assume you earn 30k, including any car allowance. The £355 x12 will be deducted from your gross salary, so you'll pay tax on £25,740. In addition, you'll pay 20% (in your case) 13% on the list price of the car you order - lets assume 25.6k, your effective gross salary will be £25,740 + £25.6k x13% = £29068 - this is what you'll pay tax on.

You'll also have to pay my fee of £5k per question, + VAT, so make sure you factor this in to the car you choose.

gregster10217

So all I'm really saving is the tax on £1,000 of my salary at those figures? There goes another £5,000!!!