Company cars - Worth it?

[NeilF]

Am I right in saying these days, the way company cars work are that your tax code is adjusted so you in effect pay X hundred pounds a month in tax?

And is that it? No other taxes or charges?

Seems we have the choice to have the car we currently own privately as a company car for about £2000 a year through a company car scheme, so if that's it, it would make sense to go onto it:-
- We're losing probably over £1000 a year in depreciation.
- £300'ish insurance
- £100+ road tax
- £300+ or more servicing, problems & MOT
- Other costs

Soon adds up to about the same annually...

 

[Theophany]

I'm sure somebody much more well versed than myself will be along shortly, but my understanding is that company cars are a benefit in kind. This means your tax code will be revised downward costing you some of your personal allowance. The company car allowance paid to you is taxable income too, I believe.

I have the same choice as you with my employer and decided to keep the car under personal ownership rather than claim company car allowance. I will however change this if I end up doing more than 10k miles a year, as my mileage allowance drops from 40p per mile to 25p per mile. At present, if I do ~500 miles per month I've covered all fuel costs, the cost of repayments and lost none of my personal allowance.

e: if I do less than 500 miles p/m, I'm more worried about being fired than paying out of my own pocket.

 

[Mercenary Keyboard Warrior]

I'm sure somebody much more well versed than myself will be along shortly, but my understanding is that company cars are a benefit in kind. This means your tax code will be revised downward costing you some of your personal allowance. The company car allowance paid to you is taxable income too, I believe.

I have the same choice as you with my employer and decided to keep the car under personal ownership rather than claim company car allowance. I will however change this if I end up doing more than 10k miles a year, as my mileage allowance drops from 40p per mile to 25p per mile. At present, if I do ~500 miles per month I've covered all fuel costs, the cost of repayments and lost none of my personal allowance.

e: if I do less than 500 miles p/m, I'm more worried about being fired than paying out of my own pocket.

Pretty much spot on, they are a benefit in kind. The value of the car (list price basically) along with the emmissions generate a taxable benefit charge which is normally adjusted from your personal allowance.
If fuel is provided for personal use then that also leads to a charge via a similar mechanism.

The biggest advantage of company cars is normally the certainty they are not such massive benefits as they were historically as you pay a lot more tax on them now. The certainty comes from not running the risk of repair bills, insurance going up, road tax being hiked up, tyres etc

 

[a1ex2001]

I've never taken advantage of a company car and have always just taken the cash and maintained my own vehicle. I'm not fussy on cars and condition and for my mileage it is cheaper to own and run a reasonable car than it is to take advantage of a company scheme.

 

[Cosimo]

This way to Motors.

 

[NeilF]

I'm sure somebody much more well versed than myself will be along shortly, but my understanding is that company cars are a benefit in kind. This means your tax code will be revised downward costing you some of your personal allowance. The company car allowance paid to you is taxable income too, I believe.

I have the same choice as you with my employer and decided to keep the car under personal ownership rather than claim company car allowance. I will however change this if I end up doing more than 10k miles a year, as my mileage allowance drops from 40p per mile to 25p per mile. At present, if I do ~500 miles per month I've covered all fuel costs, the cost of repayments and lost none of my personal allowance.

e: if I do less than 500 miles p/m, I'm more worried about being fired than paying out of my own pocket.

Yeh, the company car would not really involved any company mileage etc, so that doesn't need to be considered...

 

[[TW]Fox]

This is a hugely complicated question for which you will need to sit down and do maths. On the surface a company car is a bargain and many people who chose one do so on this basis without doing the proper maths.

The most important point is that almost always the question is not 'Do I want a company car' but 'Do I want a company car OR a car allowance' because virtually every organisation which offers a choice as to whether you have a car will offer an allowance in leiu of a car.

So, you cannot and should not compare the cost of the company car with your current situation. There are two future situations (ie Car or Allowance) and its these you should compare.

As mentioned above a company car is a Benefit in Kind. You are taxed at your current tax rate on a figure which is calculated as a percentage of the vehicles P11d value (Which is normally pretty much its list price) based on the vehicles emissions.

A car allowance is taxed as it would be if it was extra salary, which it effectively is. Therefore the big point is that by chosing the car, you incur the opportunity cost of the additional salary through the allowance.

Therefore, roughly, company car cost is:

Company Car Tax cost + Net benefit of car allowance (This is a cost in this sum because its money you WOULD get if you DIDNT pick the company car. Therefore to calculate the net difference between the two options, we use this as a cost in the company car situation).

You also claim mileage at a much lower rate with a company car, so there is another loss.

If you have some more details on the cars involved and what the allowance would be, we can probably do some numbers.

 

[NeilF]

The biggest advantage of company cars is normally the certainty they are not such massive benefits as they were historically as you pay a lot more tax on them now. The certainty comes from not running the risk of repair bills, insurance going up, road tax being hiked up, tyres etc

My impression seems to be they appear to be a cheaper option now than they used to be?

 

[[TW]Fox]

My impression seems to be they appear to be a cheaper option now than they used to be?

No, this is definately not the case. There are a lot more tax efficient cars around now which can be used to reduce your company car tax liability, but it's still a more expensive thing to have now than before they overhauled the tax regieme for company cars.

Prior to 2002 it was pretty much a no brainer to take the car. Now it's far far less clear cut.

 

[NeilF]

This is a hugely complicated question for which you will need to sit down and do maths. On the surface a company car is a bargain and many people who chose one do so on this basis without doing the proper maths.

The most important point is that almost always the question is not 'Do I want a company car' but 'Do I want a company car OR a car allowance' because virtually every organisation which offers a choice as to whether you have a car will offer an allowance in leiu of a car.

So, you cannot and should not compare the cost of the company car with your current situation. There are two future situations (ie Car or Allowance) and its these you should compare.

As mentioned above a company car is a Benefit in Kind. You are taxed at your current tax rate on a figure which is calculated as a percentage of the vehicles P11d value (Which is normally pretty much its list price) based on the vehicles emissions.

A car allowance is taxed as it would be if it was extra salary, which it effectively is. Therefore the big point is that by chosing the car, you incur the opportunity cost of the additional salary through the allowance.

Therefore, roughly, company car cost is:

Company Car Tax cost + Net benefit of car allowance (This is a cost in this sum because its money you WOULD get if you DIDNT pick the company car. Therefore to calculate the net difference between the two options, we use this as a cost in the company car situation).

You also claim mileage at a much lower rate with a company car, so there is another loss.

If you have some more details on the cars involved and what the allowance would be, we can probably do some numbers.

Well, a car allowance is already included in the salary...

So what I need to find out is, if a company car is selected say that adjusts the tax code so it costs £170 a month, is that it? Or is there another payment involved somewhere? If it is just that, than £2000'ish a year seems good value considering privately running a car will not be much cheaper...

Basically, I think I need to find out is the car allowance towards a company car, or instead of a company car. ie: If a company car is taken, do you end up paying £170 more tax a month AND LOSE your X thousands of pounds car allowance? If so, it's not worth it!


The employer will of course be asked to clarify all this, but I thought I'd ask here really just to raise any questions/issues than I might be unaware of!?

 

[[TW]Fox]

Well, a car allowance is already included in the salary...

You will lose this if you take a company car. Therefore your pay cut must be considered as an extra cost of the company car.

So what I need to find out is, if a company car is selected say that adjusts the tax code so it costs £170 a month, is that it? Or is there another payment involved somewhere?

That is effectively it, yes (Unless you also get a fuel card). But say you pick a car with your figure of £170 a month extra tax, but you also lose your car allowance of, I dunno, £400 a month after tax.

The actual cost to you of taking the car is therefore not £170 a month. It's £570 a month!

Not many cars cost £570 a month to run..

Though its worth pointing out that if you pick something like a Golf Bluemotion or 320d Efficient Dynamics the tax probably won't be as high as £170 a month but at this stage its the basic maths that matter rather than the specifics, unless you can tell us:

a) What your car allowance is before tax
b) What rate taxpayer you are
c) Whether your employer would want a contribution towards the lease cost

If you can answer these 3 we can probably do some real numbers. You should know a and b already if you already get an allowance

If a company car is taken, do you end up paying £170 more tax a month AND LOSE your X thousands of pounds car allowance?

Of course you do! The allowance is there to cover the cost of you buying and running your own car. If you have a company car, the company buys (or leases) your car for you and pays for its running costs excluding fuel. Of course they wouldn't then give you the allowance on top!

 

[NeilF]

You will lose this if you take a company car. Therefore your pay cut must be considered as an extra cost of the company car.



That is effectively it, yes (Unless you also get a fuel card). But say you pick a car with your figure of £170 a month extra tax, but you also lose your car allowance of, I dunno, £400 a month after tax.

The actual cost to you of taking the car is therefore not £170 a month. It's £570 a month!

Not many cars cost £570 a month to run..

Though its worth pointing out that if you pick something like a Golf Bluemotion or 320d Efficient Dynamics the tax probably won't be as high as £170 a month but at this stage its the basic maths that matter rather than the specifics, unless you can tell us:

a) What your car allowance is before tax
b) What rate taxpayer you are
c) Whether your employer would want a contribution towards the lease cost

If you can answer these 3 we can probably do some real numbers. You should know a and b already if you already get an allowance

Oh! So you get taxed AND lose your car allowance? That's far too expensive to make it worth it then. eg:-
£2000 car allowance + 12x£170 tax = £4040 a year

Of course you'd be taxed on that £2000 so you'd only say get £1200 of it, but that still means over £3000 a year!

 

[Mercenary Keyboard Warrior]

As fox says its in the details.

I haven't yet seen anyone offered a company car or allowance decision where the allowance is better financially. (I am an accountant so people regularly ask me these sorts of things).

But there are other possible issues, some companies restrict or charge for private mileage, may charge the excess in an accident situation etc etc. Its almost impossible to say specifically which is best without hte full facts.

Most schemes when offering an allowance will specify some criteria (they are often not actually enforced) such as no convertibles, 4 doors, no 4x4s, must be diesel, must be no older then 5 years old, etc etc (will be some combination not all usually) to avoid people running ****** old cars that are unreliable or create a poor or unwanted company image. Imagine a senior sales person turning up in a 20 year old escort, or the new young sales guy turning up in a porsche convertible, or having to take 2 important clients out in the back of a Ford Ka. As I say they are regularly not enforced but are normaly within the opt out rules, its not always easy to pick the car of your choice by the time you take into account hte criteria.

 

[Peerzy]

For some people paying £3000 a year to drive round in a brand new, maintained car is worth it.

For example my yearly service, yearly set of tyres and yearly warranty will exceed £3000 this year.

 

[[TW]Fox]

Generally the company car only seems to be worth it against an allowance if you specifically wanted the car you'd get as a company car anyway. If you have a craving for a Bluemotion Golf it's unlikely that you'd be able to better it with a car allowance. But mostly the benefit of the allowance is that it allows you to run a better nearly new for less money - ie, instead of a new Golf Bluetmotion you could use the allowance to run an 18 month old Golf GTI and pocket the change, too.

 

[Mercenary Keyboard Warrior]

Oh! So you get taxed AND lose your car allowance? That's far too expensive to make it worth it then. eg:-
£2000 car allowance + 12x£170 tax = £4040 a year

Of course you'd be taxed on that £2000 so you'd only say get £1200 of it, but that still means over £3000 a year!

Those are small numbers though, what sort of car are you actally running today and how old?

 

[NeilF]

For some people paying £3000 a year to drive round in a brand new, maintained car is worth it.

I'm sure it is... But I'm happy driving our 6yr old version of the same car, that does the same job, looks the same apart from the license plate, and be £1000+ better off a year (even taking depreciation into consideration)

A license plate isn't worth over £1000 a year to me personally...

 

[[TW]Fox]

For some people paying £3000 a year to drive round in a brand new, maintained car is worth it.

For example my yearly service, yearly set of tyres and yearly warranty will exceed £3000 this year.

What a spectacularly useless set of figures. What exactly is your point? A Porsche Boxster S company car is going to have a net cost of rather more than £3000 a year so saying company cars work because you can have a diesel hatch for less than 4 tyres and a warranty on a used Porsche is.. totally odd?

If you were running the sort of car you'd get for £3000 a year total cost on a company car scheme you wouldn't be paying £3k for 4 tyres and a warranty

Did you just post to show off your Porsche?

 

[Peerzy]

What a spectacularly useless set of figures. What exactly is your point? A Porsche Boxster S company car is going to have a net cost of rather more than £3000 a year so saying company cars work because you can have a diesel hatch for less than 4 tyres and a warranty on a used Porsche is.. totally odd?

Did you just post to show off your Porsche?

No not at all.

The brief point (and I've never massively looked into company cars as I've never been offered one) is that for some people the £3k a year for a new plate on a generic hatch is well worth it.

£3k a year doesn't really get you very far in my opinion with any car when you fact in insurance, tax, tyres, servicing, repairs, warranty, depreciation etc....

The cost of my tyres, service and warranty was just in there as it's fresh in my mind as I was speaking to them yesterday about it.

 

[Mercenary Keyboard Warrior]

Generally the company car only seems to be worth it against an allowance if you specifically wanted the car you'd get as a company car anyway. If you have a craving for a Bluemotion Golf it's unlikely that you'd be able to better it with a car allowance. But mostly the benefit of the allowance is that it allows you to run a better nearly new for less money - ie, instead of a new Golf Bluetmotion you could use the allowance to run an 18 month old Golf GTI and pocket the change, too.

Interesting view fox, a lot depends on the costs of insurance for younger people.
Getting older decent no claims etc may well work out ok, Ive been asked by people if they should take an allowance where their insurance alone would be more than combined cost of taking a company car, before you even considered capital loss/personal lease costs, running costs...

Of course the actual amount paid also affects it, most schemes seem to offer a similar amount than the cost of the lease as an allowance, and forget the other hidden benefits the company picks up the bill for such as the insurance, running costs etc