Car allowance - Calling all tax guru's and petrol heads !!

20vt-rs

From_St_Neots wrote: »

Have you thought about buying your current company car when it expires and then taking out a plan to cover maintenance etc. RV on cars are low which is why more companies are opting for car allowance.

Lease firms balance RV with lease payments, as RV are low the monthly payment increases which your employer absorbs.

As RV are low you should get to buy the company car at the end of the lease for a reasonable price.

I have toyed with the idea, however the car is up on miles now and it's been in a couple of prangs so I know it's been repaired, I'm quite fussy so wouldn't want to keep this one on. I'm hoping by taking the allowance I could up my earnings slightly by choosing a fun, but sensible car.

By the way, possibly a stupid questions but what is RV?

DKLS

How about a Classic as your company car for a leftfield choice, My old MD has gone doen this route and has had a range of interesting cars from US muscle cars to a citroen DS, and now is driving a Jensen Intercepter.

He pays peanuts to the taxman to run a classic.

From_St_Neots

RV is residual value, the lease company makes an assumption what the car is worth at the end of the lease. Years ago a lease co could assume and expect to get high RV which in turn lowers the monthly payment.

Nowadays RV's have dropped which in turn has increased monthly payments which is probably why your employer is offering a car allowance. To recoup the shortfall, lease firms are handing out stiff hand back penalties for the slightest scratch and dent.

If RV's don't pick up soon the concept of company cars could be almost extinct as employers offer the lower risk car allowance.

Lum

Your figures seem about right. I make it £365 a month + BIK but I probably typo'd something somewhere.

Don't forget that you can claim a tax rebate on the amount your company are short changing you with those mileage figures. The HMRC figures are 45p for the first 10,000 and 25p thereafter so in your case if you did 20,000 miles.

First 10,000 miles = short changed by 5p = £500
Second 10,000 miles = short changed by 13p = £1300
Total = £1800
Tax relief @ 40% = £720

Not a bad haul for simply filling in Form P87

20vt-rs

Thanks for the useful feedback guys, I understand all about RV now and that does make sense!

Also good to know about claiming back the shortfall in rates, by my calculations and based on the £11k business miles I've done in the last 12 months, I'd get £852 back, nice bonus each year!

Does look like opting out is going to be achievable and if I'm sensible then I may get a slight increase in income.

There has to be a downside, and I suppose if I have a car issue or accident, I'd have to sort my own car, whereas the company gets me a hire if needed.

Lum

You can't claim back tax relief when you're driving a company car.

If you do 11,000 miles a year the figures become:

First 10,000 miles = short changed by 5p = £500
Second 1,000 miles = short changed by 13p = £130
Total = £630
Tax relief @ 40% = £252

You don't get to claim back the full amount, otherwise no company would pay any mileage ever and just tell you to claim it back out of your income tax.

Even so £252 for a form that takes about 5 minutes to fill in is a very cost-effective use of your time

And yes, having to sort your own car out and arrange hire cars is a pain, and if you have some bad luck it can get expensive. I ended up running a nice car and also an old diesel banger as a spare car to keep me on the road during services and repairs, though some bosses frown upon you turning up on a customer site in a manky old Passat with gaffer tape holding the windows in.

20vt-rs

Lum wrote: »

You can't claim back tax relief when you're driving a company car.

If you do 11,000 miles a year the figures become:

First 10,000 miles = short changed by 5p = £500
Second 1,000 miles = short changed by 13p = £130
Total = £630
Tax relief @ 40% = £252

You don't get to claim back the full amount, otherwise no company would pay any mileage ever and just tell you to claim it back out of your income tax.

Even so £252 for a form that takes about 5 minutes to fill in is a very cost-effective use of your time

And yes, having to sort your own car out and arrange hire cars is a pain, and if you have some bad luck it can get expensive. I ended up running a nice car and also an old diesel banger as a spare car to keep me on the road during services and repairs, though some bosses frown upon you turning up on a customer site in a manky old Passat with gaffer tape holding the windows in.

I did my figures based on my last 12 months mileage, but on the assumption I'd be on allowance:

Company pays:
- 40ppm for the first 5k miles and thereafter 12ppm
- My last mileage check I did 16k total in a year and 12k of these were business.

My maths or understanding may not be right here so let me explain just in case (these are all business miles):

First 5k miles short changed by 5p = £250
Next 5k miles short changed by 33p = £1650
Next 2k miles short changed by 13p = £260
Total = £2160
Tax relief @ 40% = £864

Is this right or have I got it wrong

Re hire cars etc, this is my only reservation, I've quite a bit of bad luck with the car I have (hence why I don't want to buy it) - but I'll have to keep some contingency fund for hire cars if needed, plus I could always steal my OH's car if absolutely desperate. Like the idea of a banger mind you

Lum

Oh.. only 40 for the first 5,000 miles. I didn't spot that.

Yes that 5k-10k stretch is going to result in a big rebate!

And yes you're going to end up like me. Me and my GF have a car each and a third car we share between us when one is broken or in for a service or whatever.

It does become a nightmare after a while if you have a run of bad luck. In 4 years my main car was rear-ended 3 times, stolen twice (once from outside a hotel during a site visit) and I eventually crashed it at 1AM on single carriageway in the middle of Wales on the way home thanks to the engine dying a horrific death half way around a wet corner. Oh and it's replacement got a brick dropped through the windscreen while I was driving down an A road near Monmouth.

I was doing 40-60,000 miles a year at the time mind. Eventually quit that job as they were running me into the ground faster than I was running old bangers into the ground. I now work from home, but still haven't kicked the spare car habbit.

20vt-rs

Lum wrote: »

Oh.. only 40 for the first 5,000 miles. I didn't spot that.

Yes that 5k-10k stretch is going to result in a big rebate!

And yes you're going to end up like me. Me and my GF have a car each and a third car we share between us when one is broken or in for a service or whatever.

It does become a nightmare after a while if you have a run of bad luck. In 4 years my main car was rear-ended 3 times, stolen twice (once from outside a hotel during a site visit) and I eventually crashed it at 1AM on single carriageway in the middle of Wales on the way home thanks to the engine dying a horrific death half way around a wet corner.

I was doing 40-60,000 miles a year at the time mind. Eventually quit that job as they were running me into the ground faster than I was running old bangers into the ground.

Thanks for your help and advice Lum, seems we are not too dis-similar, my car's been rear ended 3 times as well, twice outside my house too! And I had my wheels stolen in Chesterfield a couple of years ago, the toe-rags left my car on stacks of yellow pages :mad: I think it was just a run of bad luck.

My mileage has steadily dropped over the last 3-4 years, I'm doing 16k in total where as I was up near 30k historically. Lots of online meetings and conference calls does keep the mileage down! But much better if I decide to personally lease a car now.

Must have been a bit scary with that engine failure, brown trouser moment. Glad you're ok though.

k3lvc

I've been in your situation albeit with slightly different numbers. Focus for me has always been a balance between fun, reliability and lifetime price (cost less residual value). The extra variable thrown into this now is increasing VED rates.

For me it's generally always been good to run a 1-2 y/o 2ltr+ diesel (Honda Accord, Merc C270/C320, Volvo D5) from a main dealer negotiating 2 years servicing/MOT cover/warranty as part of the deal. Borrow the money at low rate over 4 years and take the gamble that the car is worth more than 50% of what you paid for it (inc. interest) after 2 years when you trade it in and start again.

Best I managed was an Alfa Spider 2.4JTDm for £399 a month inc maintainance over 3 years, worst financially is my current A4 cabriolet 2.0TFSI with less than 30mpg and below the 2.0ltr threshold.

If your money stretches then latest Volvo S60 D5 is 215BHP for £30 VED and has all bells/whistles with the Merc C250CDi not far behind