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TonyTax
TonyTax, Tax Consultant
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Is it correct that if you earn £100,000 in a year and you have

Resolved Question:

Is it correct that if you earn £100,000 in a year and you have a car as a benefit in kind that they reduce your tax free allowance at the front end as well as charging you 40% of the value of the vehicle. In other words you get hit twice? If your earnings already mean that you have zero tax free allowance then you just get charged the 40% of the P11d value?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

If your "adjusted net income" is £100,000 or more, you lose £1 of your personal allowance for every £2 of income over £100,000 until it is gone. So, for 2013/14, if your adjusted net income is £118,880, you will have no personal allowance. Take a look here for information on how to calculate your adjusted net income.

The car benefit is based on the C02 emissions and the list price of the car when new. It will be added to your income to determine what your adjusted net income is for the purposes of calculating your entitlement to the personal allowance. There is a car benefit calculator here.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.


Sorry, not sure my question is answered. i understand that with a salary of £100,000 and over your tax free allowance reduces by £1 for every £2 of income.


 


In my case for 2010/11 I earned £105,938 (should have been £30,396 tax) Plus i had a car with a p11d value of £22,762 (£9104.80 in tax). Therefore total tax bill is £39,501.


 


HMRC claim i owe £43,420.60. This is due to them charging me the £9104.80 for the car and reducing my tax free allowance (as they have added the P11d value to my total income). Hence they have double dipped. Surely this isnt right and they should reduce your tax free allowance or charge you the full amout in tax at the back end (or a blend to recieve the total tax). Not both???

Expert:  TonyTax replied 3 years ago.
Can you tell me what the tax figure as shown on your 2010/11 P60 is please.
Customer: replied 3 years ago.

sorry it is the 2011/ 12 tax year



Pay(p60) - £105,938 (Tax Paid detailed on p60) - £38,374.80


addditional amount paid following self assessment of £2791.20 (total tax paid = £41,166)


 


P11d value of car = £22,762 (£9104.80 income tax)


 


HMRC claim i owe a total of £43,420.60.

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me for a few minutes while I do some calculations.
Expert:  TonyTax replied 3 years ago.

There has been no double dipping. Your taxable benefits are taken into account when determining your entitlement to all or part or none of the personal allowance. The fact that the car benefit may have been in your tax code does not mean that you have been taxed twice on it, once through the tax code and then through self-assessment. That would be completely untenable and it has simply not happened.

 

The amount of tax shown on your P60 will have taken account of the car benefit if it was in your tax code. That tax deduction figure is deducted from your overall liability to arrive at the net underpayment or overpayment.

 

Your income in 2011/12 was £128,700 (£105,938 + £22,762). The point at which you lost entitlement to the personal allowance in 2011/12 was at an income level of £114,950. The personal allowance was £7,475 for 2010/11.

 

On an income of £128,700 with no deductions, you should have paid income tax of £44,480 as you will see if you use the calculator here. You deduct from that the tax shown as deducted on your P60 which was £38,374.80 and you are left owing £6,105.40. You appear to have paid an additional £2,791.20 which reduces the underpayment to £3,314.20.

You say the tax office say your total liability is £43,420.60 as opposed to my calculation of £44,480. The difference may be caused by gift aid relief or pension contribution relief. Those will reduce your overall tax liability. If the figure of £43,420.60 is correct, then you still owe £2,254.60.

Underpayments occur for many reasons, the main one being an incorrect tax code. I suspect that you had a personal allowance in your tax code for 2011/12. The car benefit may not have been spot on either. Tax codes should be checked before the start of a tax year. If a tax code is incorrect, the tax deductions will be incorrect.

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