Car allowance stress!

wrightyi28

I dont really understand how a car allowance works. Can someone please spell it out for me?

New Job is £26k + £4800 p/a Car allowance.

The company will pay 16p per business mile (no personal)

The questions are how much tax am I liable for having the Car allowance? I have read that I can claim 40p per mile for first 10k business miles and 26p for anything above this from HMRC.

Does this mean that in effect my employers will give me 16p everytime I fill out an expense claim in and then I have the option to goto HMRC to get the remaining 24p? If this is the case would I need to put a claim in to HMRC at the end of the year or could I do it monthly?

So confusing!! HMRC says tax doesnt have to be taxing!! What a load of bull!

Thanks in advance

wrightyi28

Anyone any ideas?

speedbird1973

wrightyi28 wrote: »

Anyone any ideas?

The car allowance is taxed as income tax. Basically assuming no other benefits you'll pay tax based on an income of £30,800.

You can claim the difference back off the taxman. So the 24p for the first 10,000 miles you claim back at the end of the tax year. They usually give me a cheque and then adjust my taxcode based on the previous years mileage.

wrightyi28

Thank you.

So when I hand my expenses in to my company I will need to make copies of them so I can fill some sort of form out at the end of the year?

Is there a maximum sum I can claim back? Say if I did 30000 miles would I be able to claim £9200 back from employer and taxman?

peachyprice

wrightyi28 wrote: »

Thank you.

So when I hand my expenses in to my company I will need to make copies of them so I can fill some sort of form out at the end of the year?

Is there a maximum sum I can claim back? Say if I did 30000 miles would I be able to claim £9200 back from employer and taxman?

No, you won't be claiming £9200 back.

The allowance is 40p a mile for the first 10,000 miles, after that it is 25p a mile.

So if you do 30,000 business miles your employer pays you 16p per mile, you can claim TAX RELIEF on the other 24p for the first 10,000 then 9p for the remaining 20,000 miles.

10,000 x .24p = £2400
30,000 x .09p = £2700

You can claim TAX RELIEF on £ 5100

Assuming you are a basic rate tax payer you can claim back £5100 x 20% = £1020, which will either be sent to you at the end of the tax year or will be added to your tax allowance and your code adjusted.

wrightyi28

peachyprice wrote: »

No, you won't be claiming £9200 back.

The allowance is 40p a mile for the first 10,000 miles, after that it is 25p a mile.

So if you do 30,000 business miles your employer pays you 16p per mile, you can claim TAX RELIEF on the other 24p for the first 10,000 then 9p for the remaining 20,000 miles.

10,000 x .24p = £2400
30,000 x .09p = £2700

You can claim TAX RELIEF on £ 5100

Assuming you are a basic rate tax payer you can claim back £5100 x 20% = £1020, which will either be sent to you at the end of the tax year or will be added to your tax allowance and your code adjusted.

OK so if I did 20000 miles:

From employer:
20000 x 16p = £3200
Taxed = £640

From Taxman:

10000 x 24p = £2400
10000 x 9p = £900
Total = £3300
Taxed x 20% = £760


So I would get £640 (assuming this IS taxed??) from my employer
and £760 from the taxman
. Taking the total to £1400??

Am I right with this?

Thank you for assistance

SarEl

I am no expert on tax (that's what an accountant is for) - but isn't there something wrong in this advice so far? The HMRC 40p tax relief amount is based on "all costs" - so petrol/depreciation/repairs and servicing etc. But the OP is getting £4,800 car allowance and 16p per mile buisness mileage from the employer - notjust 16p per mile. It is my understanding that the car allowance is counted as part of the "40p" in some way. As I said, I don't do these things - but I am sure that it isn't as simple as it sounds.

wrightyi28

I really am lost now!

speedbird1973

SarEl wrote: »

I am no expert on tax (that's what an accountant is for) - but isn't there something wrong in this advice so far? The HMRC 40p tax relief amount is based on "all costs" - so petrol/depreciation/repairs and servicing etc. But the OP is getting £4,800 car allowance and 16p per mile buisness mileage from the employer - notjust 16p per mile. It is my understanding that the car allowance is counted as part of the "40p" in some way. As I said, I don't do these things - but I am sure that it isn't as simple as it sounds.

The 40p relief is for the running of the car.. the car allowance is for the car itself, not its upkeep. Entirely seperate. You pay income tax (and NI) on your car allowance.

peachyprice

SarEl wrote: »

I am no expert on tax (that's what an accountant is for) - but isn't there something wrong in this advice so far? The HMRC 40p tax relief amount is based on "all costs" - so petrol/depreciation/repairs and servicing etc. But the OP is getting £4,800 car allowance and 16p per mile buisness mileage from the employer - notjust 16p per mile. It is my understanding that the car allowance is counted as part of the "40p" in some way. As I said, I don't do these things - but I am sure that it isn't as simple as it sounds.

I 'think' the the £4800 car allowance is instead of a company car, not for running costs, at least that's the way it's always been where I have worked, you can have an 'XYZ 4 door GTI' or £4800 on your salary. But that may not always be the case.

SarEl

peachyprice wrote: »

I 'think' the the £4800 car allowance is instead of a company car, not for running costs, at least that's the way it's always been where I have worked, you can have an 'XYZ 4 door GTI' or £4800 on your salary. But that may not always be the case.

The car allowance is not classed as "compensation" for not taking (or being given) a company car. It is a "payment for depreciation /costs" of your own car being used for company business. And hence it in part duplicates some of what the "40p" is for. I believed (but I am not sure about this) that the "40p" was for cases where no additional allowance was made, and if one was this was part of the offset. Or at least this is what I am led to believe by our accountant because we pay staff an allowance and a mileage rate, and this is what the staff have been told - that in fact because the allowance and the mileage rate amount to the same as the "40p" they cannot claim any more tax relief. Maybe the wording of the type of allowance matters?