Lease Car - Company Car Confusion???

[Goldfinger]

Hi all, been a while since last postings...

Anyway, 7 months in owning our PHEV and all 'was' going well.....

She's been paying the 'lease' through salary sacrifice and we've managed well with the reduce wage income, fair enough.

Fast forward to this months pay slip, and her tax code changed and is now - according to HMRC, paying even more tax for her 'company car!!!! ????? :?

So, our question is, what's the difference between a company car and a lease car??

I've asked around a few people so far and they've said various things like,

Does she get fuel / mileage allowance etc??

No she doesn't, so they said it's a LEASE car.

So now, even they are confused on why she's paying MORE tax???

She's now thinking getting a lease car has been a wrong decision because of the sheer amount of tax she's paying.....

 

[maby]

Even though it is a PHEV, there will be a tax penalty for having it - and these things can happen slowly - if you've only had it 7 months is it the case that they have only just got round to adjusting your tax code?

 

[SolarBoy]

The lease is being paid directly via a salary and this makes it a company car, hence it is a benefit in kind and therefore taxable.

I am not an accountant!

 

[Goldfinger]

Bummer then.....

 

[maby]

Bummer then.....

Are you paying the full lease, or is the company contributing? If the latter, then it certainly is a company car and there will be a tax penalty. I would expect that the BIK would be reduced in proportion to your contribution towards the lease cost.

 

[jthspace]

Are you in the UK?

http://www.nextgreencar.com/company-car-tax/bik-rates/

I believe it should be 5% of the new car price for 2014/5 tax year. Maybe they do not realise it is a PHEV rather than a diesel which will be hammered by a large BIK charge.

Here is the BIK for this tax year for this car.

http://www.nextgreencar.com/company-car-tax/calculator.php

I do not know if a lease car is different to a company car in the eyes of the tax man. That being said, most company cars obtained thru the company are leased these days. Who leased the car? Is the lease in the name of the company and the registered keeper (V5C) you? I assume so if there is "company car tax" being charged. A call to the tax office seems the best option, if you can get through on the telephone.

Jeff

 

[Goldfinger]

The lease is through her name, and it's her name on the V5C, she's paying the full lease amount too....

Her employer has no 'input' in any way, which is why I asked what is the difference between a company and lease car?

 

[jthspace]

If the lease is in her name, then I don't readily understand why the tax has gone up. It may be due to the salary sacrifice and the IR treating it as a company car even though she is paying the lease; i.e. viewed someway as tax avoidance?? I really don't know. A local accountant may be able to give you expert advice, and I would think 30 minutes or 1 hour consultation would be worth every penny if it (a) gets the tax reduced, or (b) clarifies the position for you.

Jeff

 

[maby]

The lease is through her name, and it's her name on the V5C, she's paying the full lease amount too....

Her employer has no 'input' in any way, which is why I asked what is the difference between a company and lease car?

That is a slightly misleading question - most company cars are lease cars. When I was young and was given my first company car, it had been purchased by my employer and was their property, but times have changed and very few UK companies purchase their own car fleet these days. The more recent change has been the growth in personal leasing - it used to be the case that the lease companies would not deal with private individuals like most of us here.

It sounds like there has been some confusion in your case - though it does rather beg the question why you have gone for a personal lease which is paid through salary sacrifice? Why didn't you go direct to a personal lease company?

 

[hungrymackem]

Hi all, been a while since last postings...

Anyway, 7 months in owning our PHEV and all 'was' going well.....

She's been paying the 'lease' through salary sacrifice and we've managed well with the reduce wage income, fair enough.

Fast forward to this months pay slip, and her tax code changed and is now - according to HMRC, paying even more tax for her 'company car!!!! ????? :?

So, our question is, what's the difference between a company car and a lease car??

I've asked around a few people so far and they've said various things like,

Does she get fuel / mileage allowance etc??

No she doesn't, so they said it's a LEASE car.

So now, even they are confused on why she's paying MORE tax???

She's now thinking getting a lease car has been a wrong decision because of the sheer amount of tax she's paying.....

My guess is that is a NHSFleetSolutions car.

If this is the case - I can fill you in with a lot of detail - I am onto my 3rd lease deal

 

[CJ1045]

You should not be paying BIK if you pay the full value of the lease. I suspect that your company has given the tax man bad information. I would expect that the tax man would want the company to send them a correction. The good news is that you should get all that tax back via your tax return.

CJ

 

[Goldfinger]

It is through NHS Fleet HM.

And now people are saying she shouldn't be paying the BIK even though she pays for it before tax / NI etc.

So now we're really confused. :?

Whatever happened to speaking plain English instead of in some kind of 'taxman talk'...??

I guess a trip to an accountant is in order....

 

[hungrymackem]

It is through NHS Fleet HM.

And now people are saying she shouldn't be paying the BIK even though she pays for it before tax / NI etc.

So now we're really confused. :?

Whatever happened to speaking plain English instead of in some kind of 'taxman talk'...??

I guess a trip to an accountant is in order....

Can only comment on my experience!! Any salary sacrifice agreement, the taxman will see as a benefit in kind. You will pay tax on it.

As far as the car is concerned, some employers deduct the relevant tax at source, some do not. if tax is deducted at source, the employers deducts the tax and pays direct to the taxman. If not deducted at source, the employer issues a P11D form - this is sent to the employee AND the taxman. These (in my experience) are sent October(ish). When these are received by the taxman, they will adjust your tax code to tax you on the benefit in kind.

You may be in the position where you are paying twice as much tax (per month) for the remainder of the tax year to make up for the tax you have not paid in the first half of the year. I believe the benefit in kind is only around £35/month. This should mean that next tax year, the tax payments should drop to that kind of level.

I have been taxed at source, and then via P11D upon changing employers - it did make it very difficult for me to understand exactly what was going on.

Have you received a P11D?

If you speak to your salaries department, they SHOULD be able to confirm the details above (although in my experience, I discovered the above and informed my salaries department what was going on!!). In my experience, the taxman is about 6/12 behind what is current!

 

[CJ1045]

It is through NHS Fleet HM.

And now people are saying she shouldn't be paying the BIK even though she pays for it before tax / NI etc.

So now we're really confused. :?

Whatever happened to speaking plain English instead of in some kind of 'taxman talk'...??

I guess a trip to an accountant is in order....

So what you are now saying is that your wife is not paying tax on the lease payment. Clearly she should be paying tax on this amount. So the Taxman should charge her tax on the lease to the extent that she would be in the same financial position as if she was paying the lease out of her net salary.

CJ

 

[Ozukus]

What you have entered into is a Salary Sacrifice Car Scheme.

Effectively this works as follows on the basis you are in the 40% Tax Category:

Say the lease cost of the car is £250

This comes out of your gross pay, therefore effectively costing you £150

You will also pay less National Insurance of £5, therefore dropping the cost to £145

You will then pay benefit in kind tax as each vehicle under a salary sacrifice scheme is treated by HMRC as a Taxable Benefit in Kind (BIK) for that employee, based on the manufacturers list price and CO2 emissions for the chosen vehicle.

Based on this you will be paying about £55 per month for BIK (GX3h) and therefore raising the cost to £200

This the standard approach for all Salary Sacrifice Car Schemes.

 

[maby]

What you have entered into is a Salary Sacrifice Car Scheme.

Effectively this works as follows on the basis you are in the 40% Tax Category:

Say the lease cost of the car is £250

This comes out of your gross pay, therefore effectively costing you £150

You will also pay less National Insurance of £5, therefore dropping the cost to £145

You will then pay benefit in kind tax as each vehicle under a salary sacrifice scheme is treated by HMRC as a Taxable Benefit in Kind (BIK) for that employee, based on the manufacturers list price and CO2 emissions for the chosen vehicle.

Based on this you will be paying about £55 per month for BIK (GX3h) and therefore raising the cost to £200

This the standard approach for all Salary Sacrifice Car Schemes.

So, it's still a bit cheaper than taking it on a private lease agreement, but not as much cheaper as it might seem at first?

 

[maby]

P.S. Thinking about that explanation, it seems to me that anyone on a lower marginal rate of tax stands to benefit less and someone below the basic tax threshold will actually come out worse off. If that is the case, it seems that the OP may have been poorly advised and probably should be able to back out of the lease scheme.

 

[Ozukus]

P.S. Thinking about that explanation, it seems to me that anyone on a lower marginal rate of tax stands to benefit less and someone below the basic tax threshold will actually come out worse off. If that is the case, it seems that the OP may have been poorly advised and probably should be able to back out of the lease scheme.

Yes it's only in favour of high rate tax payers at either 40% or 45%, though the car does come fully insured and serviced which should be taken into consideration of the overall cost over the lease term.

I looked at doing this on my wifes Car Salary Sacrifice Scheme, however when putting the spreadsheet to use, it proved cheaper to just do a private lease, and pay for all the ancilleries myself, even though my wife is a high rate payer. The only cars that seemed to work out better than private were vehicles like the SEAT 1.2 DSG or the Renault Captur, not exactly the type of vehicle I was looking for.

The other thing that people don't consider is BIK for a PHEV is based off of the retail value, not the subsidised (-£5K) value.

 

[geoffshep69]

Couple of things to be aware of - don't wait for the P11D in order to get your tax code sorted. The P11D is produced several months after the end of the tax year and will help to correct any over or under payment for the previous year, but ideally you want your tax code to be correct from as soon as you receive the car.

My employer is supposed to advise HMRC as soon as I take delivery, but past experience shows that they don't always do this, so I always just get in touch with them directly and give them all the details so that they can build the appropriate figure into my tax code. That means I am paying the correct tax from the start so avoids any surprises later on.

In terms of whether its better or worse than a personal lease, it definitely works out better for me. I've just ordered a Gx4h in pearl white, and the net monthly lease cost (after my Income Tax and NI saving) is around £315 per month. The BIK comes to about £65 per month, so total actual cost to me is £380 per month. That's all inclusive, and covers servicing, repairs, unlimited mileage, insurance, etc. I asked the local dealer to quote me for a similar model, and over the same period (3 years) he was talking about £480 per month, and even then it was a 3+35 payment arrangement so would require 38 payments at £480 rather than 36 at £380 under the company car scheme. I'd still have to add insurance onto that as well, and with an 18 year old son that would probably add another £100+ per month.

Appreciate that the BIK figure is due to increase over the next few years but even using the projected BIK figure for 3 or 4 years down the line, the company car scheme is still a much better option for me.