I’m sure that I have covered this before but it bears repeating.
How would you like a pay cut? No, of course not, I hear you say. But wait; there are people who are being given pay cuts and are actually pleased about it!!
I came across one last week. He had a fuel card from his employers so (as far as he was concerned) he got free personal fuel for his BMW 520d.
Except…
HMRC will say: “Benefit in kind, tax it.” And the calculation gives you a tax bill of £1,600* (£800 for a 20% taxpayer) because of the special rules they use for cars, despite 10,000 miles in such a car costing about £700 (assuming you get the official mpg out of it).
So he is £900 out of pocket already. And there is worse to come. You see his firm will be charged on the benefit too as well as having to pay for the fuel. Bottom line is (after allowing for tax, vat and so on) that they could have paid him an extra £600ish NET if they had gone for extra salary.
So he has got an effective £1,500 pay cut.
If you have a company car (or you know someone who does) get them to talk to the company accountant (or better still someone who can add up) to see if it’s worth having. And don’t say : It’s too much trouble, even if you are a 20% taxpayer you would still be better off to the tune of £800ish if they gave you a salary hike instead.
Have a great week
Paul
*I haven’t used exact figures as the fuel cost and tax on the car will vary depending on make and model, price of fuel and your driving style as well as the number of personal miles driven.