Car Allowance vs Company Car - Dilemma

hippyboy · 16 June 2009 at 8:38AM

Hi, first post so hope I'm following correct etiquette!

I have a private car (paid for '07 BMW 335) and receive £5k pre-tax from work. They pay for business miles (15p/mile) but the rest (private miles, tax, service, insurance) is up to me. I do c.25k miles a year, mostly commuting, and my insurance/tax/service etc is probably c.£2.5k/year.

A guy's left work and I've been offered to take over his company car. It's an '07 BMW 325i and they would want about £300 a month from me, so I wouldn't lose my allowance altogether.

Basically, would I be better off annually taking the offer and selling my private car to pay off some credit cards and put some savings aside?

My car's only worth half what I paid for it two years ago (I know!) so as I love driving it, would it be better to drive if for a few more years?

Hope someone can help?

Many thanks

fengirl_2 · 16 June 2009 at 9:29AM

When you say 'they will want £300 pm from me'....does this mean you will pay your employer £300pm to 'hire' the car from them, or what? Will you still receive your £5k car allowance? How many business miles do you do a year?

hippyboy · 16 June 2009 at 9:47AM

My current £5k is c.£420/month before tax. They're suggesting they'll take £300 of this leaving me with a smaller allowance.

I reckon I do between 1k and 2k business miles a year.

Any · 16 June 2009 at 9:54AM

how can you get a car allowance if you are going to have company car? That is no longer car allowance, but a wage increase...
Don't forget you will pay tax on the car. You need to know it's P11D value and CO2 (and fuel type) to be able to tell how much it is really going to cost you.

hippyboy · 16 June 2009 at 10:32AM

Any,

You're right; technically it will be a c.1K wage increase.
Car's P11D is £29205.
CO2 is 170
Petrol engine

thanks

Any · 16 June 2009 at 10:41AM

Are you in the 40% tax bracket?

Any · 16 June 2009 at 10:45AM

Taxable benefit is about £6425 just on the car (do you get free fuel with it? For private use I mean?)
So if you are in 20% tax bracket you pay £1285 tax a year.
In 40% bracket £2570.
Divide by 12 to get monthly tax.

Any · 16 June 2009 at 10:46AM

However - the car will be insured and maintained by the company. Which also has a value. It's now up to you to add up the numbers.

hippyboy · 16 June 2009 at 11:30AM

Hi Any,

Yep. In 40% bracket. And no, I pay for all my own fuel.

So, am I right to assume I'll be £300 worse off for the salary reduction and £215/month for ADDITIONAL tax? That means is taking home c.£500 less versus the car/insurance/servicing etc.

If so, that's £6k a year, which is less than the car costs to run/insure. If so it's suggesting I stay put.

Thanks

Any · 16 June 2009 at 11:44AM

Yep, that is right.
As I say very often - if you want nice expensive car, brand new ever 2-3 years and no worries about it, go for company car - in most cases it comes up cheaper (very depends what car you pick, the higher CO2 emmissions and P11D price the higher the tax).

If you can do with couple of years old car, which you can buy for bargain and are happy to take all the risk (if your car breaks down, you pay for hire car - company car breaks down, company pays for hire car)...Then buy your own and take car allowance - it's usually cheaper.

I have to say that your car allowance is also quite generous. At my old company drivers would get £300 before tax maximum. Only directors got £500.

BUT don't forget that your car already lost half of it's value - if you add that up then it actually didn't come cheaper...

Once your car will die, you might be better off going for company car if you like driving BMWs..

Car Allowance vs Company Car - Dilemma

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