Company car or car allowance?

A question about : Company car or car allowance?

Hi,

I’m hoping for some advice on choosing a company car versus a car allowance. Sorry if these questions have been posted before, but my mind is going numb trying to answer all my questions at once! So it’s over to the experts...

Can anyone tell me whether I’ve worked out these numbers properly or if I’ve missed anything?

1) Company Car: I’m offered a VW Golf (and get the choice of either a petrol or diesel model). I know I’ll be hit with more tax, and I think this is how to work it out. Is this right?

Value of the car - Ј18,000
Emissions tax – 17%
Total Tax per annum = Ј3,060

2) Car Allowance: I’m offered Ј3,600 per annum as an alternative. I’m not too sure how to work this one out but my tax bracket is 20%. So I think this means I’m taxed 32% (20% + 12% NI) on my allowance - is that right? I’m unsure about the 12% figure and think I read it on a website.

Allowance - Ј3,600
Tax @ 32% - 1152
Total after tax = Ј2,448.

Basically I have a lot of things to consider – my personal car insurance is high due to the area I live, and at the minute I’m not doing many business miles - but that could easily change.

So I won’t throw lots of questions into the mix. For now I’m just trying to make sure I have the numbers right and then I can weigh up the pros and cons.

Any thoughts would be appreciated.

Cheers.

Best answers:

• in your example for option 1) 3,060 is the taxable benefit and NOT the actual tax, so if you are a 20% tax payer and the BIK doesn't make you a 40% tax payer then you actually pay 20% of 3,060 in tax
• My company has the same arrangement. The allowance is simply be added to salary with tax/NI deducted at the appropriate rates. Car benefit is used by HMRC to calculate code.
  I elected to go for the benefit as I dont have any costs to pay. Purchase/depreciation, servicing, consumables etc.
  You will need to factor these in if you opt for the allowance not just the Tax/NI effect.
• Hi Guys Im completely confused about this too. I currently have a company car and I have just received a letter today from my work to say that they are introduncing a car allowance scheme. Basicially they are saying that we can pick if we want the car or the allowance. Here are the details
  Option 1 - Company car - new hyundai i30 classic 1.6 crdi 110ps blue drive.
  List price - I think Ј16,895
  tax bracket - 13%.
  So 13% of Ј16,895 is Ј2,196, so being a 20% tax rate payer, do I then pay tax of Ј439.27 annually (Ј36.60 monthly)?
  They pay for everything except petrol and I can claim back business miles at 12 p mile.
  Option 2 - Car allowance
  Allowance of Ј3,600 annually added to salary and taxed at 20%.
  Would have to pay for tax, mot, services, AA, tyres, business insurance etc.
  I would need to buy a new car as I just sold my own car 6 months ago as there was no point having two.
  Please can you let me know your thought on what is best?
  My gut is saying to me that the company car is better as the tax seems quite small to me, but my only concern is that the new car they are propsing in quite small - my current company car is astra estate.
  Thanks in advance
• Also depends on how many business and personal miles you do.
  If you do 10,000 business miles, then (45p-12p) x 10,000 = Ј3300 of your income will be tax-free if you choose the car allowance.
  If you have low business miles but high commuting/personal mileage, the car itself may be a better option because its value to you may be much higher than the costs that you save by having a company car.
  You need to work through the costs and tax implications of your own situation.
• car allowance is good if you want something different - i ran an mx5 for a few years with a car allowance, but i always loose the arguement of which is better with OH on cash or car, she says car as the risks and costs lie with employer, she knows each year what her tax cost will be (and in one year she had 6-7 punctures that all needed 'new tyres' so company car was a good choice)so she really won that year
• Thought I'd add to this thread rather than start my own. Spent a lot of time reading this and other thread and doing my own sums but would just like some advice from those that know more about it than me.
  I've been offered a role where I can either have 40k basic and a 4k car allowance with business miles paid for.
  Or I can swap the allowance and business miles for a company car with a fuel card that can be used for personal use.
  The car will most likely be a focus estate but petrol or diesel has not been made clear.
  From various online calculators it looks like the list price of the car is around Ј19,000 and the tax bracket is 13% so the taxable benefit is around Ј2600. Now I'm not sure if I pay 20% or 40% tax on that.
  I know that 40k basic minus my Ј8105 tax free allowance drops me below the 40% threshold but I'm not sure if having a company car changes my tax free allowance. So for now I assume I either pay Ј516 or Ј1032 in tax on the car depending on my tax bracket.
  As for the fuel card benefit, again from online calculators it seems like the taxable benefit is Ј2444 so I pay either Ј488 or Ј976 in tax on that depending on the tax rate.
  I assume I'll drive around 15k in private miles, most of which will be a daily commute to work. Business miles is a bit of an unknown quantity as I will not need to travel all the time. I'll be based in one location and every so often will need to drive to other locations around the country for work but its not like I'm a sales rep where travelling is a huge part of the job. I may only drive on business every third or fourth week for a day or two. So that's a long winded way of saying I expect my private miles to be a lot more than my business miles.
  As such if the company pay for my private fuel it does seem as if I'll still get a decent amount of "free" fuel after I've paid tax. Also as I understand it tax, insurance, mot and any vehicle repair is covered with company car. I would also probably sell my current car which might get around Ј1700 into my pocket.
  Taking all that into account I've come up with a net annual pay of between 28629 and 30593 (depending on which tax percentage I pay on benefits). Plus whatever my current car sells for added to the first year's pay.
  On the other hand if I take the allowance I'm assuming my salary increases to 44k, as the allowance is added to my salary and doesn't seem to be classed as a benefit. This will take me above the 40% tax bracket for part of my earnings so I'll pay a little bit more in income tax. However I wont have the additional benefit taxes from the company car so total tax would be slightly less.
  Business mileage will be paid for, after I've claimed it back. But private fuel will by my own cost. At 15000 private miles that will be an outlay of over Ј2000 on fuel. I've read that I can claim back something on my private mileage from the taxman but I don't know much about that.
  I then have the costs of running my own car. I'm not sure if I need business insurance as I've said before my job is not based around travelling, it just may be necessary to travel to different a few times a month. Anyone know about this?
  The other thing is I currently drive a 07 reg Vectra with 95k miles on the clock. In the last 6 months I've had to replace the ERG valve, air con unit and the alternator. It also needs new brake pads in the next 6 months and a few new tyres. And I expect more problems due to wear and tear. So the running costs could stack up.
  With all that taken into account my take home pay with the car allowance would be around Ј28705
  All of this suggests that there isn't much in it between the two choices. I'd end up with a similar take home pay but with the company car would have the benefit of piece of mind if anything went wrong.
  But I'm not sure my sums are correct. Would love to hear other forum members' opinions.
• You cannot get anything back in tax for private mileage.
  You have a high private mileage, puts a lot of wear on the car, so I would say you are better with the company car and fuel card.
• This might be of help to some of you i found this great comparison tool between company car or car allowance. it was on a website mysaleshelp.com
• if you are driving to somewhere that is not your permanent place of work (2 years rule - really complicated, but basically not your normal place of work or somewhere you have not or are not expecting to work for 2 years)
  if the company does not pay your mileage or pays you less than allowable allowance you can claim the difference between the allowance and your payment on your tax return. eg 1000 miles @45p (45p allowance - 0p assuming no payment) would be Ј450 - you will get back Ј450*2-% or Ј450*40%
  I am not a lawyer / accountant / ... :-)
• Just just a quick question with regards car allowances.
  ive been offered a position where i will get a 6k allowance per year, but, to cut a long story short, im thinking of renting a car on the weeks that i will need one. Presuming the company i work for are ok with this, are there any problems or implications with regards HMRC etc etc??
  Thanks
• Yep, you'll get taxed on your car allowance as if it is salary.
  If you then hire a car out of your own pocket I cannot imagine your work or HMRC will care. Just make sure you have the right insurance on it (for commuting / work purposes).
• Thanks for the information, i guessed that would be the case but always good to get another opinion..
• My wife has just got a job with Ј5800 car allowance. She is in the 40% tax bracket. Having never had a company car or tax allowance before(as her last company used to hire a vehicle for business trips) we are no sure of how this would work.
  They have told here she will get 18p per mile for petrol
  from what I have read on this thread I think I work it out like this.
  She will be allowed to reclaim the tax on=(45-18)*10,000 =Ј2700 of this allowance so will infact just be taxed at 40% on Ј3100 of the allowance which would mean paying Ј1240 in tax.
  So out of the Ј5800 allowance after tax,she would be left with Ј4560?
  Is this correct and if so how do we reclaim the tax she paid? Or do the company do it when she puts in her expenses claims for the mileage?
  Thanks for any help?
  Oh and PS: If she was to get a car with a low emission rating that had the 13% benefit in kind - would she be able to claim this as it isn't a compamy car but just a car bought with a car allowance?
• Your sums are right but the reality is that your wife will suffer 40% tax (and 2% national Insurance) on her car allowance each payday.
  However getting tax relief for her business mileage is a different matter.
  According to the final paragraph in the following link she can make a provisional claim immediately so that her PAYE code is changed.
  https://www.hmrc.gov.uk/incometax/how-to-get.htm
  That is something new to me but seems fairer than the old system whereby you couldn't claim the tax relief until the end of the tax year but, to be practical, it seems very unlikely that an amended code would reach her employer in time for her first payday.
  It should all work out in the end but if money is tight she could find herself struggling in the short term.
  As regards your PS… no, if she provides the car tax relief is 45ppm for the first 10,000 miles each year and 25ppm thereafter regardless.
  HMRC theory is that their mileage rates reasonably reflect the true costs of running a modern, fuel efficient car.
• Hi all, have seen all the messgaes about the above, but still none the wiser, I have been offered a car allowance of Ј5400 or to choose a car(a golf or similar), can claim back business mileage but not personal, business miles are all quite local. Which would work out best, I have taken the allowance in a previous job just wondering if it is still the best option?
  Many thanks