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Car Allowance - WHAT TO DO??
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# 1
rscosworth
Old 14-12-2005, 5:45 PM
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Default Car Allowance - WHAT TO DO??

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
Charles J
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# 2
nej
Old 15-12-2005, 10:27 AM
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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.
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# 3
rscosworth
Old 15-12-2005, 2:58 PM
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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
Charles J
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# 4
Stephen Webber
Old 15-12-2005, 4:06 PM
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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
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# 5
inmypocketnottheirs
Old 15-12-2005, 4:28 PM
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Quote:
Originally Posted by rscosworth
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?
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# 6
rscosworth
Old 15-12-2005, 5:06 PM
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the mileage rate is 34p per mile which aint bad,

i wanna new/nearly new car tho,,,,,
Charles J
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# 7
grumpyoldgit
Old 15-12-2005, 5:18 PM
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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
K eep
I t
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S tupid!!
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# 8
Swiss_Toni
Old 15-12-2005, 7:56 PM
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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.

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# 9
hands2bfree
Old 08-03-2011, 12:24 PM
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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

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# 10
lisyloo
Old 08-03-2011, 1:31 PM
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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.
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# 11
Any
Old 08-03-2011, 1:37 PM
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Quote:
Originally Posted by hands2bfree View Post
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

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.

Last edited by Any; 08-03-2011 at 1:40 PM.
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# 12
Any
Old 08-03-2011, 1:39 PM
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Quote:
Originally Posted by lisyloo View Post
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.
It is only 40p for first 10k miles, then it is only 25p.

Yes, you are right - allowance is kind of like company car, but you already get taxed NI and tax on the income so for some reason HMRC views it differently to company car.. I don't see sense either (as you get taxed on car benefit as well when you have comp car), but that is how it is.
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# 13
Any
Old 08-03-2011, 1:48 PM
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Quote:
Originally Posted by hands2bfree View Post
i have been offered a job of 35K with a 5K car allowance.
what would i take home after tax with this?

Otherwise from April net pay (if you get full personal tax free allowance of 7475 - ie tax code 747L) would be:

Gross Pay 3,333.33
Tax free Allowances 623.25
Total taxable 2,710.08

Tax due 542.02
National Insurance 327.72

Net Wage 2463.59

Source http://listentotaxman.com/
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# 14
hands2bfree
Old 08-03-2011, 1:57 PM
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[QUOTE=Any;41815722]Otherwise from April net pay (if you get full personal tax free allowance of 7475 - ie tax code 747L) would be:

Gross Pay 3,333.33
Tax free Allowances 623.25
Total taxable 2,710.08

Tax due 542.02
National Insurance 327.72

Net Wage 2463.59

Thanks for the info; how much of this Net Wage would i be allocating to my car?
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# 15
hands2bfree
Old 08-03-2011, 2:00 PM
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Quote:
Originally Posted by Any View Post
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.
Im not being offered an alternative; ie: a company car.
is there a way i can make this work for me? I have the feeling i may not be getting the best deal out of this negotiating.
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# 16
Any
Old 08-03-2011, 2:17 PM
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Quote:
Originally Posted by hands2bfree View Post
Im not being offered an alternative; ie: a company car.
is there a way i can make this work for me? I have the feeling i may not be getting the best deal out of this negotiating.
5k per annum is about 275.80 net. Can you buy, insure and service a car that will do 25k miles per annum for that? Or you will pay more and then you are no longer really on 25k per annum wage.. However if you got a company car, you would pay tax on that benefit, lets say roughly 50? So that makes it to 325.80 to spend theoreticaly for car per month.

What kind of car do you think you will need to have?

If you get fuel card then there is no fuel to be taken into consideration, so the 325.80 it is..

Last edited by Any; 08-03-2011 at 2:19 PM.
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# 17
lisyloo
Old 08-03-2011, 2:30 PM
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Quote:
Yes, you are right - allowance is kind of like company car, but you already get taxed NI and tax on the income so for some reason HMRC views it differently to company car.. I don't see sense either (as you get taxed on car benefit as well when you have comp car), but that is how it is.
Hi Any - So just to confirm. Are you saying he can apply for the tax relief? on the difference between 40p and what he gets paid up to 10K miles (he does a lot less than that)
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# 18
hands2bfree
Old 08-03-2011, 2:42 PM
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Quote:
Originally Posted by Any View Post
5k per annum is about 275.80 net. Can you buy, insure and service a car that will do 25k miles per annum for that? Or you will pay more and then you are no longer really on 25k per annum wage.. However if you got a company car, you would pay tax on that benefit, lets say roughly 50? So that makes it to 325.80 to spend theoreticaly for car per month.

What kind of car do you think you will need to have?

If you get fuel card then there is no fuel to be taken into consideration, so the 325.80 it is..

im not sure yet if there is any minimum criteria for a car. if not ill currently run my current private car for 12 months and save a deposit for a newer car that can take the annual milleage, by then i would have passed my probation period, and also assess the actual annual mileage. so that would leave me at most 275.80 a month - minus current running costs of my current car?
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# 19
jennifernil
Old 08-03-2011, 2:59 PM
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Quote:
Originally Posted by lisyloo View Post
Hi Any - So just to confirm. Are you saying he can apply for the tax relief? on the difference between 40p and what he gets paid up to 10K miles (he does a lot less than that)
Yes, no problem doing that. My husband did this for many years.

The "car allowance" is just extra salary, all fully taxed.

The 40ppm is what you are allowed to receive UNTAXED.

So just work out the miles x 40p, subtract what he has already been paid (presumably taxfree) and claim relief on the difference.
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# 20
Any
Old 08-03-2011, 3:31 PM
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Quote:
Originally Posted by lisyloo View Post
Hi Any - So just to confirm. Are you saying he can apply for the tax relief? on the difference between 40p and what he gets paid up to 10K miles (he does a lot less than that)
Yes, that is right.
You need form P87 for that.
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