How much car allowance will I actually get?

Pythagoras · 7 June 2012 at 5:35PM

Hi Everyone,

I have been offered a job which pays a car allowance in addition to the salary and I have been trying to work out how much I will actually get to run a car.

I think I have come up with an answer, but I am hoping that someone will be able to tell me if I have worked this out correctly…

The job pays 36k and a car allowance of £3750. In addition to the car allowance I will get 45p for the first 10,000 business miles and 25p thereafter. I will probably do around 10,000 business miles a year.

As I understand it, the car allowance is treated as additional salary, so of the £3750, I will only get a ‘take home’ car allowance of £1462 after tax at 40%, NI at 12% and student loans repayments at 9%.

If I do 10,000 business miles I will also get £4500 on top of this (which isn’t taxed?) Assuming actual cost of fuel is about 17p per mile (£1700 total) that leaves me with an additional £2800 towards the cost of running the car.

So in total I will get £2800 + £1462 = £4262 to buy, insure, tax and maintain the car.

Does that sound about right?

Thanks for your help

zagfles · 7 June 2012 at 5:41PM

Why do you think you'll pay 40% tax - you won't if the above is your only income, tax will be 20%.

Other than that it looks right. The business mileage won't be taxed as it's what HMRC allow for privately owned vehicles.

Pythagoras · 7 June 2012 at 9:25PM

Thanks for your reply. I think that I may have misunderstood the 40% tax brackets. The HMRC website says that the 40% tax starts at £34370. I took that to mean that I would have to pay the higher tax rate on anything that I earn over £34370. Does this actually mean that you have to pay 20% tax on the first £34370 of taxable salary? i.e. You'd have to earn £42475 (£8105 personal allowance +£34370) before you start paying tax at 40%?

zagfles · 7 June 2012 at 9:32PM

Pythagoras wrote: »

Thanks for your reply. I think that I may have misunderstood the 40% tax brackets. The HMRC website says that the 40% tax starts at £34370. I took that to mean that I would have to pay the higher tax rate on anything that I earn over £34370. Does this actually mean that you have to pay 20% tax on the first £34370 of taxable salary? i.e. You'd have to earn £42475 (£8105 personal allowance +£34370) before you start paying tax at 40%?

That's right it's £42475 ie personal allowance plus 20% band.

It's going down a bit next year, think it'll be about £41k, as they are increasing the personal allowance again but want to take most of it back from higher rate taxpayers. So you could be over next year if you get a payrise...but you'll only pay 40% on the part over the theshold (and then NI drops to 2% - so you pay 10% more in total)

Pythagoras · 7 June 2012 at 9:42PM

Thanks for your help - it makes sense now. It's good to know I'll be able to take home a little more than I initially thought

CLAPTON · 7 June 2012 at 10:01PM

and bear in mind that if you pay anything into a pension, that is tax free

so e.g. if you paid 3,000 into your pension then you could earn 45,475 before being taxed at 40% on the amount over

How much car allowance will I actually get?

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