Company cars

[Alps]

I was wondering if someone could help, just been given a company car allowance at work, whats the most beneficial way of using this.. ie take the cash, or use it on a car, what are the benefits etc? I really havent got a clue on this!

any help would be appreciated!

 

[imadoofus]

A car allowance (unless it's in the form of an Employee Ownership Scheme) is just an additional to your salary, and as a result you pay tax and NIC on it. If the addition is sufficient to take you into a higer tax bracket, then you'll pay higer-rate tax on the amount over the threshold.

As to what to do with it, that's really up to you. Be aware, however, that if you are expected to use your car for business (as opposed to a 'perk'), then the increasing emphasis on issues such as Corporate Manslaughter mean that your employer may wish to place restrictions on the type of car, age, mileage and so on, in order to have some element of control over its business drivers. It's for this kind of reason that many employers are moving away from the cash allowance, and back to providing cars for employees. There's more admin for them (which is whay they went to cash allowances in the first place), but the risks are lower and more easily controlled.

If you have complete freedom with regard to the car, then do as you wish. Use the money to pay for a loan, a lease, or PCP, whatever. Keep some back for repairs, insurance etc.

Don't, however,treat it as just extra money in the bank each month. If, for example, your employer decides to revert to the managed-fleet solution, or you change to a job which doesn't give a car allowance, then you'll take a hit in your monthly 'disposable income'

PJ

PS: Having paid tax and NIC on the allowance, there are no real gains to be had by playing smart in any way. Your employer will presumably pay you a rate per mile for business mileage, and that can be up to 45p per mile for the first 10,000 miles, and 20p thereafter before you suffer a further tax liability. These rates are set by the Inland Revenue, and are intended to cover RFL, insurance, fuel, repairs, maintenance and so on, so if you do get paid a rate per mile, then you probably wont be able to claim any further costs from your emploeyer without having to pay tax (unless they have a dispensation with HMRC, which is unlikely)

 

[Kamisuma]

I was wondering if someone could help, just been given a company car allowance at work, whats the most beneficial way of using this.. ie take the cash, or use it on a car, what are the benefits etc? I really havent got a clue on this!

any help would be appreciated!

I assume that you are given this because you need to be mobile for work! Do you also get reimbursed for business mileage?

Depending on mileage to be covered and distance from work, I would probably just pocket the money. You have a decent car anyway.
If the mileage is likely to cause significant depreciation on your C36 (not that likely), or the cost of fuel versus a more economical replacement/alternative is high (very likely), then this might be the way to go; in which case get a decently-priced turbo diesel for work, and keep the AMG for fun.

Its your choice, and good luck

 

[GregE240]

It depends on what the company car scheme is all about cars-wise, and what you want to drive.

My company has certain restrictions eg no 2 seaters, no convertibles etc, and with the money you could lease something like a Mondeo or a VW Passat. I took the cash back in 2001 and bought my E240, using the cash allowance to cover the loan for the car and a little more besides. The extra I put away and back in March traded the E-Class for my Lexus. I used some of the money for the Lexus and put the rest in myself. The allowance covered the loan plus pretty much all of the servicing during the E240s life. Luckily, very little non-service items failed (MAS, headlght unit, A/C condensor).

In terms of fuel allowance, I get 18p per mile, which covers my business mileage, even in the Lexus. I claim back the relief as outlined at the end of imadoofus' post. This has been as much as £1,000 one year, which was put into the "pot".

I guess it depends on your personal situation - some colleagues at my place run a brand new diesel company vehicle and make a fair bit of money on their fuel allowance. Personally, I didn't want a Mondeo. I wanted something of my own which had to be reliable, hence the Mercedes. Given your current car, I guess you have to ask yourself if you are happy to put the business miles onto the C36 or whether you would prefer to keep it as a second car for the weekends etc.

I hope this helps.
Greg

 

[Mozzer]

Also worth considering that whilst it is in effect just an increase of your current salary, banks do not consider it as such, so you will not be able to borrow a larger mortgage based on your car allowance, so be careful what you tell your bank.

Car allowances are also not considered in redundancy payouts either.

 

[imadoofus]

Car allowances are also not considered in redundancy payouts either.

No, but if you're given (or give) notice, then the allowance continues to be payable jsut as a car would continue to be provided.

 

[Mozzer]

No, but if you're given (or give) notice, then the allowance continues to be payable jsut as a car would continue to be provided.

Good point, well made.

 

[chriswt]

I take the cash but and after everything I'm just as well off buying a 2nd hand BMW 330 (£12k worth) as I am having a brand new company car (Seat Loen DSG 2.0d)

If I was doing mega miles then the company car is much much better but I'd rather buy and maintain a decent 2nd car.

If you compare like for like (e.g new car as comany car compated to same car as private purchase) its much much better to take the company car.

 

[Rory]

If you compare like for like (e.g new car as comany car compated to same car as private purchase) its much much better to take the company car.

That depends - especially on what you mean by 'better'!
Also, there are many different possibilities on circumstances.

In my company our allowance is £700/mth and 15p mile. In addition you get the tax back up to 40p (so 10p back) for the first 10K miles and 25p (so 4p) for mileages after that.
Our guys who had high tax cars like BMW325i's and doing a fair few business miles were *loads* better off (financially) by opting out.

On the other hand, Boots reckoned that most of its drivers would opt back in when the tax rules changed. They're typically paying tax at 22% and driving £10K cars so they could end up paying £30/mth or so in tax for their fully expensed (apart from fuel) cars.

In Alp's case, he's already got a car - if he doesn't do much business mileage and the company is Ok with that car, then he can just stick the money in his back pocket.

 

[Dieselman]

I would firstly take the cash as you already have a perfectly good car to use for business, if required.
Don't forget depreciation is nearly always the largest cost of running a car.

If you drive a reasonable business mileage you will recover all the tax & NI paid on the allowance and maybe some more.
The mileage allowance paid will also have a bearing on the recovery you make as it will vary month on month.

It is best to look at this over a year rather than monthly so approximate your yearly mileage and multiply that buy the rate per mile.
The HMSO rates are 40p per mile upto 10,000 and 25p thereafter.

The system sounds really complicated but is in actual fact very easy.

Send me a PM with your email addy and I will send you a spreadsheet I devised to work out profit/loss against running a company car. It calculates the tax situation for you.

 

[Deleted member 6183]

Also worth considering that whilst it is in effect just an increase of your current salary, banks do not consider it as such, so you will not be able to borrow a larger mortgage based on your car allowance, so be careful what you tell your bank.

Car allowances are also not considered in redundancy payouts either.

Most lenders will take a car allowance into account when calculating salary towards a mortgage, my own experience of redundancy from a job with a car allowance was that I was compensated for the loss of the allowance. I appreciate that not all lenders or employers are the same.
I would question an employer who didn't offer a company car, I usually suspect that those that only offer the allowance option are unwilling to invest in their employees in other areas also.

Just speaking from my own experience!

 

[Alps]

Thanks for all the advise guys, judging by what ive read on here and elsewhere, It seems the cash is the best way forward! Company has no stipulation on what car i drive, so the C36 is here to stay, the car allowance is mediocre, so after tax it`ll just about cover any train fares i need to pay , this way I keep the milage off the C36 and any extra cash from it can help pay for the rust I can expect to spread on it

seriously, thanks for all the advice, been really usefull!

 

[GrahamC230K]

Thanks for all the advise guys, judging by what ive read on here and elsewhere, It seems the cash is the best way forward! Company has no stipulation on what car i drive, so the C36 is here to stay, the car allowance is mediocre, so after tax it`ll just about cover any train fares i need to pay , this way I keep the milage off the C36 and any extra cash from it can help pay for the rust I can expect to spread on it

seriously, thanks for all the advice, been really usefull!

I take the cash. There is no down side!

 

[Sp!ke]

Unless you do mega mileage and hence suffer heavy depreciation on your car, I'd take the cash.

I think the point at which you should be looking at a company car is when you are doing 25K miles + per year.

 

[anarchy-inc]

In my company our allowance is £700/mth and 15p mile. In addition you get the tax back up to 40p (so 10p back) for the first 10K miles and 25p (so 4p) for mileages after that.

The HMSO rates are 40p per mile upto 10,000 and 25p thereafter.

Sorry if I'm hi-jacking this thread but I was about to start a new thread on this very subject due to the "unusual" way my new company has implemented their car allowance scheme. Both Rory and Dieselman have mentioned this 40p and 25p rates in conjunction with car allowance. I must admit I'm a little confused. Here is the way I understand that it should work;

1. Receive company car and fully expensed fuel. - Pay car tax and fuel benefit tax.

or

2. Receive company car and NO fuel. - Pay car tax and NO fuel benefit.

or

3. Run your own car and receive up to 40p/mile upto 10k miles and 25p thereafter. If paid less than these amounts, you can claim the extra tax benefit later.

or

4. Get paid a car allowance of say £500/month and receive 12p/mile. Again, if paid less than 12p than you can also claim tax benefit.

Now what Rory and Dieselman suggest is similar to what my company have offered. £500/month allowance plus 12p/mile. However, they will calculate every month how much of that £500 is taxable by claiming 40p/mile for some of it and 25p for the rest based on the number of miles claimed that month. So as far as the revenue are concerned, my allowance will vary month by month and as such my taxable allowance is always less that £500. I will though allways receive my £500 (somehow) plus any extra payment for extra miles. As far as I'm concerned, it's a tax fiddle. Thoughts?

 

[Dieselman]

Sorry if I'm hi-jacking this thread but I was about to start a new thread on this very subject due to the "unusual" way my new company has implemented their car allowance scheme. Both Rory and Dieselman have mentioned this 40p and 25p rates in conjunction with car allowance. I must admit I'm a little confused. Here is the way I understand that it should work;

1. Receive company car and fully expensed fuel. - Pay car tax and fuel benefit tax.

or

2. Receive company car and NO fuel. - Pay car tax and NO fuel benefit.

or

3. Run your own car and receive up to 40p/mile upto 10k miles and 25p thereafter. If paid less than these amounts, you can claim the extra tax benefit later.

or

4. Get paid a car allowance of say £500/month and receive 12p/mile. Again, if paid less than 12p than you can also claim tax benefit.

Now what Rory and Dieselman suggest is similar to what my company have offered. £500/month allowance plus 12p/mile. However, they will calculate every month how much of that £500 is taxable by claiming 40p/mile for some of it and 25p for the rest based on the number of miles claimed that month. So as far as the revenue are concerned, my allowance will vary month by month and as such my taxable allowance is always less that £500. I will though allways receive my £500 (somehow) plus any extra payment for extra miles. As far as I'm concerned, it's a tax fiddle. Thoughts?

No fiddle as you will pay tax and NI on the £500.

The HMSO mileage rates are to allow payment of 40p and 25p per mile tax free. If you are paid more than this you will pay tax, if less then you will make a recovery.

The best way to look at this is annually as you can only really calculate over all the funds you are paid.

So £500 per month = £6000.

say 20,000miles x 12p = £2400.

£6000 + £2400 = £8400.

To fully recover the tax & NI you would need to drive 27600 miles. 40p*10000 + 25p*17600.

As this example shows there is only 20,000 miles claimed which gives a total allowable tax free claim of £6500, so the additional payment is £1900. Assuming 22% tax rate that means the tax & NI to pay is £1900*33% = £627, if a 40% tax payer then this becomes £1054.

In effect the allowance is reduced to £8400-£627 = £7,773pa or £8400-£1054 = £7346pa.

The fact that there is a fixed monthly allowance doesn't matter as that "enjoys" tax paid at source.

ps. The split of some miles at 40p and some at 25p are just a method of smoothing the payment you recieve. Your company will be paying the first 833 miles at 40p and the rest at 25p. Just make sure they give you the extra 4 miles at 40p in the final month.

You could ask them to pay the 40p in full until your 10,000 miles is up as it guarentees you recieving it in the tax year.

 

[anarchy-inc]

No fiddle as you will pay tax and NI on the £500.

ps. The split of some miles at 40p and some at 25p are just a method of smoothing the payment you recieve. Your company will be paying the first 833 miles at 40p and the rest at 25p. Just make sure they give you the extra 4 miles at 40p in the final month.

You could ask them to pay the 40p in full until your 10,000 miles is up as it guarentees you recieving it in the tax year.

The problem though is that I won't be paying tax and n.i. on the full 500 as it should be. On our monthly expense claim form, there is a box entitled "Gross Car Alowances paid through salary". Using the spreadsheet they provided I entered some fictional mileage (realistic) and each month the amount of car allowance vaired from 200 to 400. This is the amount entered on the paye as "allowance" which is taxable. The remainder of the 500 was paid as mileage and therefore not taxable. Hence why I say it looks like a fiddle.

Besides, your post doesn't answer the basic premise as I understood things. I believe(d) that the 40/25p mile was ONLY for when you are NOT paid a car allowance and that the 12p was for the allowance. To me this is the basic question that needs answering. I have been on schemes like this before and they allways worked like my number 4 above.

 

[JFleming]

The company I work for are very honest but the car allowance is merely a way to boost your annual salary, without the company having to pay pensionable benefits/stock options on the extra amount, so I don't see how that fits in reducing the 40p/25p allowances by HMRC. I still get to pay income tax and NI on the amount though!

 

[anarchy-inc]

The company I work for are very honest but the car allowance is merely a way to boost your annual salary,

I guess it's all relative to your circumstances though. For me having a car is not a benefit and having a car allowance just allows me to save a bit on tax and have the car I want. (i.e. a CLK and not a VW Passat)

It's quite funny actually in our company. Of the 20+ company car drivers, only 3 of us are on the alowance scheme. Most have a Passat or the managers and thier Jags. The 3 of us on allowance have; CLK (wonder who?) a 525 and the other has a C200 (only 1 year old). The rest of the drivers think we are all over paid as we seem to afford "better" cars. I think it's the fact that they are Mercs and BMW's, that pisses the VW drivers off!

 

[Rory]

The problem though is that I won't be paying tax and n.i. on the full 500 as it should be. On our monthly expense claim form, there is a box entitled "Gross Car Alowances paid through salary". Using the spreadsheet they provided I entered some fictional mileage (realistic) and each month the amount of car allowance vaired from 200 to 400. This is the amount entered on the paye as "allowance" which is taxable. The remainder of the 500 was paid as mileage and therefore not taxable. Hence why I say it looks like a fiddle.

This is similar to the way many of the 'ECO' (Employee Car Ownership) schemes that are run by leasing companies for employers work. Basically your employer is taking your tax-free mileage allowance and using it to reduce their payments to you so they save money (as long as you do a fair few business miles).
HMRC is supposed to be looking at these schemes - especially the ones where companies simply seem to have transferred ownership of the car from the company to the employee, but the company still accepts all the risk of ownwership (which I appreciate doesn't apply in your case).

Besides, your post doesn't answer the basic premise as I understood things. I believe(d) that the 40/25p mile was ONLY for when you are NOT paid a car allowance and that the 12p was for the allowance. To me this is the basic question that needs answering. I have been on schemes like this before and they allways worked like my number 4 above.

Your understanding is wrong. There is no HMRC 12p rate.
An employer can pay as much car allowance as they want to - if you like, it's compensation for not having a company car. The mileage rates are then a totally separate thing. The 40p/25p rates for business miles in your own car are HMRC approved rates, so you get a tax refund if the employer chooses to pay less and you pay tax if the employer chooses to pay more.

These opt-out schemes can be complicated and whether yours is a good thing or not (for you) I can't really say.