Company Car or Car Allowance Connundrum

Prismv

Hi guys first time poster here, just stubled across your site, looks great.

I'm wondering if someone could give me some advice because at the moment my head is spinning with this one.

I've just started a new job with my employeer and basically I have to decide on which option to take.

I have a fairly generous allowance £5000 gross per annum.

So I'm wondering what is the best option for me.

I know I can take a company car pay benefit in kind and have all my maintance, tax and insurance issues taken care of but I don't know if I can get better tax breaks with the allowance.

I've seen a decent Mercedes which I can get for around £372 a month for 15k miles a year or £401 for 20k miles a year (both on a 2 year deal).

It's unlikely I'll need maintance on this as it's only 2 years and car tax is included for the first year. So basically I just need to sort out tax for next year and my insurance and probably 1 service along the way.

So here are questions which I'm confused about.

I know if I don't take a company car I will no longer have BIK to pay however I will have to pay more PAYE and NI on my increased £5k in my salary so what in effect looks like £415 a month for a car might be less after tax.
At the moment I think I just creap into the 40% tax bracket as I currently have a Company Car, so I don't know which is the best option in terms of tax or what that £415 figure actually would be?

I'm going to be doing a lot of mileage, I think if I say 20k which is probably going to be 18k biz and 2k private, I won't be having a fuel card so does this mean I can claim back Biz miles at the approved Government rate? i.e. 40p per mile for the first 10k and 25p after? Does this apply to car allowances though or is it a lower rate?
If I do do the milage I think and I can get those rates I'll end up with £6,000 back to me for the year, again is this a good thing?
I would imagine that this would more than cover my fuel, insurance and any maintance.

I notice with these types of deal you have to pay 3 payments in advance then 23 monthly payments via direct debit, so I'll have to take a bit of hit on the 3 payments upfront then the insurance outlay, but I should recorperate this back in the year if I can get those mileage rates.

I know I then need to source GAP insurance which I'll have to get a quote on.

The thing that scares me is if for whatever reason if I lose my job, then I have a car that is going to be costing me £400 quid a month which I can't shift for the best part of 2 years or till the term ends. I don't know if early termination can be built in? But on top of the mortgage I will be the only wage earner as the wife is pregnant due in March so I'm wondering from a safety point of view is the company car the best option?

I know I might pay more tax and my choice of the actual car is limited if I take the co car but if anything bad happens at least I can just hand the keys back and walk away which in the current finacial climate might not be a bad thing.

Can anyone give me some pointers on what I should be looking for here?

Thanks so much

bootman

We had the same decision to make a couple of months ago.

Everyone said take the allowance but we opted for the car, at least for the fist year. Like you we did not want to find ourselves lumbered with a car and no job, as you just don't know what is around the corner at the moment.

£5k less 40% will not cover your rental for the Merc, so you will already be out of pocket in that respect. Even at 20% I dont think it will cover the rental.

I don't know hope the fuel allowance works if you get a car allowance. My husbands expenses for reads

Own car claim 44p a mile
Car allowance 22p
Company car 20p

One other thing, make sure if you go down the own car route you get the mileage right. Don't say you will do 15 thousand and then do 20. You will get hammered on the excess mileage rate you will have to pay back to the lease company.

Prismv

Hi thanks for this. I agree with you, until I sit down and do the sums the Co car is looking much safer and better.
That said I might be able to get an early termination cover.

The issue I think I have is that my employers I think feel that because they are funding the car via an allowance they won't pay me the full 40p per mile nor even the 25p after 10k.

Instead they will just pay the "fuel element" which is around 13p-14p in which case the whole thing is dead in the water.

I should find out tomorrow what the situation is but like you say 5k less the 40% take leaves me with an allowance of just £3k which lets face it isn't going to get me a lot.

It's just covering my fuel let alone maintenance. Then there is insurance to think about!

The excess mileage rate is 10p per mile I believe so yes if I were to go over that I'd be facing a nice bill of £500 lol.

What really annoys me is that all these lease deals are 3 payments upfront then 23 payments after (for a 2 year deal) in my eyes if you are going to pay upfront, it should be 3 then 21 payments. I think unless I can find someone who is going to do that at the very minimum then I'm going to have to take the company car.
It's not ideal as I'll have to wait ages for it If I can get the figures to work for me a leasing company is going to have to work hard for my business.

JonathanA

If you have a company car, the Inland Revenue has an approved mileage rate which is less than the 40p / 25 p per mile. I can't remember the exact figures and they can change every 6 months, but if I recall correctly it was about 11p per mile for diesel and 14p (?) for petrol. Anything more than that is deemed to be profit and taxable.

However, if it is your car that you are running (even if it is funded by a car allowance) I thought you could claim the 40p / 25p per mile. If the company won't pay that rate, you can claim back tax relief on the difference at the end of each year, but that clearly won't bring it back to the 40 p per mile.

Have you thought about doing a spreadsheet to work out the true costs of a company car or the cash allowance? I suspect, if you need to buy or lease a car to get started, that a company car may be more cost effective, but you need to do your own figures!

Hope you get it sorted

chriiiiiiiis

The AA has a good Cash or Car calculator:

http://www.theaa.com/allaboutcars/companycartax/cashorcar_input.jsp?page=cashcar

Prismv

Yeah thanks guys I'll sit down and try and plough through it.
Will try the AA site too

TighterThanTwoCoatsOfPain

to add another 2p! we just had the same choice.. went for the car.

Given that we no longer pay maintenance, tax, insurance and have c.22k worth of audi (ok not a Merc!) for much less (in additional tax) than we could have bought it for we felt it made sense for us.

TighterThanTwoCoatsOfPain

jimmo wrote: »

In pure money saving terms I cannot see what is wrong with you taking the car allowance of £5k pa from your employer and using a two tone (yellow and rust) Reliant Robin for work.

Unfortunately you may find that is against company rules for taking the allowance..

Whilst they are not strictly enforced (have been signed up to so could be!) if I choose not to have a company car then i must ensure a vehicle if provided for which must be a maximum of 7 years old and must be able to carry 5 adults in comfort. If the car is in the garage i must ensure a suitable replacement is available.

Prismv

Yes these are all very valid points and I'm glad I posted.

I just saw such a good deal on the Merc that I really thought I could go for it, added to the fact that the company car I'm due to get if I do choose it won't be with me for around 6 weeks.

Having had further discussion with my employer the 5k is gross so at 40% tax I'll only end up seeing 3k of that, which isn't going to buy me much car.

To exacerbate the situation my employer will only pay me back 13p per mile and not the 40p and 25p after the 10k miles because they are already funding the car via the allowance.

Give the mileage I'm going to do this isn't going to work for me so it's dead in the water.
I think this is a good thing as I will take the company car, I get an Audi A4 so it's still not a bad gig, it just means I have to wait for it but I can sleep at night knowing that if I get made redundant tomorrow I won't have £400 odd quit crippling me.

thanks to everyone who posted and for keeping me on the sane track

Prismv

Yes I understand I can claim the mileage back, however after 40% tax my £5k allowance will only be a £3k allowance.
That won't even cover my base rental for the car and if for some reason I don't do enough miles one month then I'm going to be out of pocket.

How do you claim the mileage back? is via a tax return at the end of the year?

withabix

You can ONLY claim tax relief on business mileage for journeys that are NOT to your permanent place of work.

So, if you drive to the same office each day, there is no tax relief due.

To weigh up the ACTUAL difference between a company car and car allowance, you need to incude the following:

Car allowance
Tax on car allowance
Tax relief on mileage
Fuel card or mileage allowance (note that fuel card is NOT taxable in itself if it's your own car - you are only taxed on the actual non-business mileage proportion of expenditure)
Increase in tax code for NOT having a company car

Weighed against:

Car offered and its list price
Reduction in tax code due to company car (BIK)
Reduction in tax code due to Fuel card for company car (BIK)

etc

Personally I had the choice of £5000 per year plus all fuel (with card)
or
Vectra 120PS Diesel Exclusiv + all fuel or no private fuel at my choice.

As my choice affects 40% tax band element and all my business mileage is tax relief-qualifying, I drive my own car.