Car Allowance - WHAT TO DO??

rscosworth · 14 December 2005 at 6:45PM

Guys,

Couple of questions ive got on my mind.

Company have asked if i would like a company car, for one reason or another i am not allowed to have one as i work for a dept which shouldnt have this as a perk. Instead of this, my boss has asked if i would accept £300 pm car allowance. I will not be doing alot of business miles in my car probably around 5000pa the rest personal

Questions are..
* am i better off with an allowance than a car?
* does the car allowance get taxed at a different rate from my normal income?
* is there any implications when claiming back my business mileage (wont have a fuel card)
* will my tax code change?

Thanks guys, will probably have some more questions soon :-)

Thanks

nej · 15 December 2005 at 11:27AM

The car allowance is basically an addition to your salary (although £300 before tax seems a bit low to me). It will therefore be taxed at the same rate as your salary, unless it pushes you into a higher tax bracket.

In terms of better off, you have to weigh it up. £300 before tax will only leave you with £234 assuming 22% tax. This then has to buy the car, insure it (for business use as well) and maintain it. You won't get that much car for that to be honest (forget the dreams of BMW's!), although there are some reasonable lease-hire type arrangements these days (the only things being you don't own the car at the end and are limited on mileage).

However if you take a company car then you get hammered on tax anyway.

As for business mileage, this can work out fairly well as the Inland Revenue is actually quite generous. You are allowed to receive 40p/mile for the first 10,000 miles and then 25p (I think!) thereafter. This is tax-free. If your company pays you less than this then you can claim back the difference from the IR and get a nice cheque from them. I did this twice and got over £800 from them each time which paid for a couple of holidays.

Bottom line is - can you buy a car, insure it and maintain it within the £300 budget. As I said, £300 seems a bit low to me - is there any kind of car you have to buy (i.e, have to buy a car of a certain age, must be "suitable" etc)? I have to buy a car no more than 4 years old when I buy it and no more than 6 years old at any time. My current car is a 9-month old Seat Toledo which costs me £210 per month to buy (£7500 over 4 years or thereabouts). The insurance is about £60 per month and the maintenance I tend to worry about when it happens

Hope that helps.

rscosworth · 15 December 2005 at 3:58PM

OK, ive tried bartering and cant get the money up any more.

My annual sallaray is 22500 so this will bring it to 36100 which after tax leaves me with about 201 per extra a month (489L tax code - am i working this out right?)

I already own a '51' vectra diesel and will look for somthing else, should get around 3500 for mine in a trade in against a 9k car which would leave me 5500 to pay over 3 years.

Insurance isnt too much for me at the moment, and adding business miles will only add about 50 a year onto the policy.

Can someone confirm that ive worked out my tax/ni correctly?

Thanks

Stephen_Webber · 15 December 2005 at 5:06PM

The salary calculator here will do it for you - it's pretty accurate (to within about £10 a month for me). http://www.i-resign.com/uk/financialcentre/

Regards,
Stephen

inmypocketnottheirs · 15 December 2005 at 5:28PM

rscosworth wrote:

OK, ive tried bartering and cant get the money up any more.

My annual sallaray is 22500 so this will bring it to 36100 which after tax leaves me with about 201 per extra a month (489L tax code - am i working this out right?)

I already own a '51' vectra diesel and will look for somthing else, should get around 3500 for mine in a trade in against a 9k car which would leave me 5500 to pay over 3 years.

Insurance isnt too much for me at the moment, and adding business miles will only add about 50 a year onto the policy.

Can someone confirm that ive worked out my tax/ni correctly?

Thanks

Why not stick with the Vectra diesel, take the money and see how it goes for a while? What mileage rate are they paying you for the 5000 miles per annum?

rscosworth · 15 December 2005 at 6:06PM

the mileage rate is 34p per mile which aint bad,

i wanna new/nearly new car tho,,,,,

grumpyoldgit_2 · 15 December 2005 at 6:18PM

So the allowances won't pay for a super car BUT don't forget that this is an additional payment which you can use to enhance your situation.
How does your business mileage compare to private as a proportion eg business 50% and private 50% ?
Given that you already own and pay for a car would the additional payments allow you to upgrade and stay in pocket by reducing the overall percentage you pay for private use of the car per annum?
Bear in mind also that you will be in an advantageous position in relation to tax as the allowance you will get at 34p per mile is below the HMRC rate so you can back claim as per previous posts.
Without doing the numbers my gut feeling is that you should come out of his new arrangement quite well - no doubt others will do the calc for you
Cheers
GoG

Swiss_Toni · 15 December 2005 at 8:56PM

For what it is worth, my wife got a car with her job...

She subsequently went on Maternity Leave and the firm let her keep the car (which is fully expenced - fuel included) - I *think* they have to let you keep the deals that come with the job even when your salary falls?

She will be off work for a year and we get free motoring - seems like a good deal to me? - if she had taken the cash, that would have ended months ago.

I am sure there is a sting, but it worked out ok for us.

hands2bfree · 8 March 2011 at 1:24PM

hi,

im kinda new to all of this car allowance, tax and benefit in kind.

could do with some basic help:

i have been offered a job of £35K with a £5K car allowance.
what would i take home after tax with this?
i also get a fuel card but details of business to private mileage yet to be defined.
i will be doning a commute of 100miles everyday.
private 8000 a year
business 25000

any help would be greatly appreciated...

im meant to be offered the job in the next few days.
and i need to know what im accepting

thanks

:j

lisyloo · 8 March 2011 at 2:31PM

Can someone confirm for me please, that if you get a car allowance, that you can claim the tax relief if you get paid less than 40p per mile.
My husband gets a car allowance rather than a company car.
But gets a low mileage rate (petrol only).

I thought 40p was for people using their own personal cars and in that case it was meant to cover everything - depreciation, wear & tear, insurance as well as fuel.
The logic (i thought) is that if you have a car allowance then some of your costs are already covered so they are only paying petrol.

Could someone please confirm for sure please?
I think he only gets about 10.5p per mile for petrol which doesn't now coevr the cost but this isn't a big issue as he doesn't do a lot of business miles. The car allowance is really more of a perk/benefit.

Any · 8 March 2011 at 2:37PM

hands2bfree wrote: »

hi,

im kinda new to all of this car allowance, tax and benefit in kind.

could do with some basic help:

i have been offered a job of £35K with a £5K car allowance.
what would i take home after tax with this?
i also get a fuel card but details of business to private mileage yet to be defined.
i will be doning a commute of 100miles everyday.
private 8000 a year
business 25000

any help would be greatly appreciated...

im meant to be offered the job in the next few days.
and i need to know what im accepting

thanks

:j

£5k allowance for 25k miles per annum business mileage is normal - and not all that favourable to you.

On this kind of mileage I would personally defo go for company car - you will be taxed on the benefit and the amount will be dependant on the car you will get (have a look at comcar.com), but all the worry for the car will be with the employer (such as service, insurance, depreciation). You will also get new company car every 2-3 years (most employers do this).

Fuel - two options - either you can pay back private mileage and not get taxed on fuel benefit, or get all fuel paid by employer and get taxed on it. With 100 miles private mileage per day you will be probably better off with taxed fuel benefit.

Or you can take the money - it will be taxed at least 20% tax and 13.8% NI. If you get any other benefit or get bonus part of your wage will possibly reach 40% tax bracket. You will be fully responsible for the car costs - service, tyres, business insurance, replacement if off road... This could be good deal if you can have old banger and do little mileage, but with total of 33k miles per annum this will prove expensive.

Car Allowance - WHAT TO DO??

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