Company Car Question

[No1newts]

Hi chaps,

Quick question and hoping someone in here may know enough to help me as I'm a little confused.

I'll use some made up figures to help illustrate my point;

I currently have a company car and let's say it's costing me £500p/m (as an example). If I were to change to a cash allowance would I be right in thinking I would then be better off £500p/m in not paying for a company car, then if the cash allowance was sat £500 p/m I would then also be that much better off (minus my tax % on the second £500)

Am I correct in thinking this?

As I say numbers are just illustrative just trying to confirm my understanding is correct.

 

[200sols]

Yes. But your allowance will be subject to tax.

 

[No1newts]

Yes. But your allowance will be subject to tax.

Magic, thought I was right but just wanted to make sure.

 

[DarkHorizon472]

The other thing to consider with a car allowance is if you get a fuel card and use it for private and work use you will likely have to do a tax return every year to claim back your business mileage. Also while being fully responsible for all running costs once any loan is paid off you own the value left in the car assuming you buy your own car.

 

[No1newts]

The other thing to consider with a car allowance is if you get a fuel card and use it for private and work use you will likely have to do a tax return every year to claim back your business mileage. Also while being fully responsible for all running costs once any loan is paid off you own the value left in the car assuming you buy your own car.

I believe I would pay, then submit receipts and get a certain amount paid in return per mile.

 

[Martynt74]

Also not sure if your company has special rules but as a receiver of car allowance you're only able to claim to lower company car mileage rates and not the "own car" mileage rate of 45p

 

[Basher]

Also not sure if your company has special rules but as a receiver of car allowance you're only able to claim to lower company car mileage rates and not the "own car" mileage rate of 45p

Certainly not the case where I work. I get car allowance + the full 45p. Even if you didn't you could claim tax relief between what you are paid up to the 45p rate.

 

[Martynt74]

Guess you work for a generous company! Where i worked (i processed the expenses). The company classed a car allowance the same as a company car since they were effectively still "paying" for the vehicle. As you say the employee could then claim the tax back on the difference.

Your way makes a car allowance an even better option if you do a lot of miles.

 

[Jez]

Also not sure if your company has special rules but as a receiver of car allowance you're only able to claim to lower company car mileage rates and not the "own car" mileage rate of 45p

This is the same where i work, but note that this is simply company policy and does not affect the tax situation. You can still claim mileage relief at normal rates on your tax return.

 

[Mercenary Keyboard Warrior]

Certainly not the case where I work. I get car allowance + the full 45p. Even if you didn't you could claim tax relief between what you are paid up to the 45p rate.

I am the same.
I even have a fuel card, company pays the bill and charges it all to me as private, well in fact they charge me as a taxable benefit, so I pay tax on it as a perk.
Then when I do company mileage its reimbursed at 45p. I managed about 150 company miles in last tax year I think. So that month the taxable benefit was reduced by 45p x mileage.

 

[No1newts]

Quick thread rezz as someone has made me doubt myself here.

So with more accurate numbers now; I pay around 500 p/m (give or take £20 either way) at the moment which comes off my tax as my car allowance.

If I then get that £500 back by going for the allowance am I right in thinking because the car is currently coming off my personal allowance the £500 I "get back" will not be taxed, it will just be in my pocket? Or, will the £500 now be subject to my normal tax rate?

If it is subject to tax it becomes less appealing than it currently looks like.

 

[Martynt74]

It'll be subject to income tax (pretty sure NI too) as per your salary. So either 20% or 40% depending on your tax bracket.

 

[Kenai]

So with more accurate numbers now; I pay around 500 p/m (give or take £20 either way) at the moment which comes off my tax as my car allowance.

I think you're confusing terms here which may end up in other people confusing you more.

If you're currently paying £500 to possess a company car, that's your BIK tax (collected by adjustment to your personal tax allowance), not 'car allowance'. By not having a company car, you would effectively see all of that £500 back in your pocket. As it goes though, this seems an extraordinary figure for BIK tax, are you sure that's right? That's a 40% tax payer with an M3 sort of figure... I'm assuming you're talking monthly.

If you are then paid a car allowance of £500, this will be subject to taxation. I think this can effectively be taxed either as salary or as a benefit but with the same net result.

 

[No1newts]

I think you're confusing terms here which may end up in other people confusing you more.

If you're currently paying £500 to possess a company car, that's your BIK tax (collected by adjustment to your personal tax allowance), not 'car allowance'. By not having a company car, you would effectively see all of that £500 back in your pocket. As it goes though, this seems an extraordinary figure for BIK tax, are you sure that's right? That's a 40% tax payer with an M3 sort of figure... I'm assuming you're talking monthly.

If you are then paid a car allowance of £500, this will be subject to taxation. I think this can effectively be taxed either as salary or as a benefit but with the same net result.

It probably is me and my terminology, the whole thing confuses my mind.

It is around 500p/m as I pay a £60 trade up as well, so call it around 440 without the trade up. It is on the steep side but it's 40% tax rate and a good car. Basically I'm getting rimmed hence the desire to get rid and go on cash allowance instead. Then I will get the £500 back and an allowance (which is taxable) of around £550 make me around £800p/m post tax better off but then to get a car which I can easily do and have money to spare.

Thanks for the help.

 

[Kenai]

It probably is me and my terminology, the whole thing confuses my mind.

It is around 500p/m as I pay a £60 trade up as well, so call it around 440 without the trade up. It is on the steep side but it's 40% tax rate and a good car. Basically I'm getting rimmed hence the desire to get rid and go on cash allowance instead. Then I will get the £500 back and an allowance (which is taxable) of around £550 make me around £800p/m post tax better off but then to get a car which I can easily do and have money to spare.

Yep, in summary you'll roughly be better off to the tune of your £440, the £60 will depend on how they take it, then the £550 allowance you'll see about £300 of, depending how they pay it not sure if you'll incur NI on it.

 

[Jez]

Yep, in summary you'll roughly be better off to the tune of your £440, the £60 will depend on how they take it, then the £550 allowance you'll see about £300 of, depending how they pay it not sure if you'll incur NI on it.

He will incur NI on it, it is taxable income This is only 2% though.

 

[No1newts]

Yep, in summary you'll roughly be better off to the tune of your £440, the £60 will depend on how they take it, then the £550 allowance you'll see about £300 of, depending how they pay it not sure if you'll incur NI on it.

Magic, thanks.

Putting my forms in today, shocking how bad the company car schemes are these days compared to 14 years ago when I started them but ho hum.

 

[Kenai]

Just think about how long you've been effectively paying £800 per month for the pleasure of your current car

 

[Kenai]

He will incur NI on it, it is taxable income This is only 2% though.

I've never been able to figure out if I was or not because I've got so many other things changing month on month.

 

[No1newts]

Just think about how long you've been effectively paying £800 per month for the pleasure of your current car

You've no idea how annoyed I was when I realised this fact, I might not even be able to get out of the scheme as it is but I'm just going to go ultra bolshy and hope it works out