Company Car Scheme

Jess

My husband's company is changing its company car scheme so that instead of receiving a car, he is given £4,500 each year (which I guess is taxed) in order to sort out his own 'company' car. Does anyone have any experience of this way of doing things and what is the best way to go. That £4,500 has to pay for everything, tax, insurance etc

Thanks in advance for any help from anyone.

nearlyrich

Hi Jess welcome to MSE I have a company car at the moment but in a previous job I used my own car for business.

The £4500 will be subject to both income tax and NI as far as I can recall, it is over 3 years since I did this. It will probably be paid as an allowance in the salary so tax etc will be deducted and the £4500 will be reduced by a fair amount. The Inland revenue website is good for this kind of information.

The employer will probably pay a set amount per mile for fuel for business miles in line with Inland revenue allowed rates.

Things to be aware of are Tax and Insurance as you said but also tyres, repairs and services, provision of a hire car if yours is in for servicing etc, windscreens, I have had 2 windscreens and 2 repairs in less than 3 years.It all adds up.

You might want to consider a personal lease but beware of low quotes as they often have unrealisticaly low mileages and there will be a charge for every mile over the agreed annual mileage.

Poppy9

Also part of the mileage rate paid by your hubby's employer will be taxable too.

Charlton_Taz

Poopy9 I shall have to disagree with you slightly The Inland Revenue currently allows your employer to pay you a max of 40p a mile for the first 10,000 business miles in a year and this is not taxable in anyway.

Poppy9

I work for the LA and we get 48p per mile so 8p per mile is taxed. Thats why I said part of its taxed.

donnie_darko_3

I have to change my car and I cant decide company car or private purchase and contra charge company for mileage, if anyone has any personal experience i would be interested to hear from you. I am looking at about £20-£30 k purchase bracket for new not used.

nearlyrich

When I was writing the response above I was thinking about the company car versus car allowance dilemma as I'm changing my car in the Summer. The car I have now is my first company car and it has been good to know it is not my problem if something goes wrong.

My current shortlist which I have whittled down from over 2000, consists of 3 cars which cost between £17 & £22K on the road, and as I drive around 40K miles per year I can't find a lease which I can afford with the car allowance the company offer I would have to go downmarket to a cheaper car. Also they want 3 months finance up front,:eek: with the company car they just give me the keys and 11p per business mile to run it. We even have a helpline which organises services, tyres, whatever.

Add in insurance, tyres, possible windscreens etc and I can't see me breaking even on the deal. I know I have to pay tax on the company car but the three cars I am looking at will be around £1200 for the year so less that £25 per week for everything sounds like a reasonable deal.

There must be someone out there who is at least breaking even but people tell me they are making a profit and I just can't see it myself.

Ian_G_3

I don't claim to be a tax expert but I do know that a few of my colleagues have taken the 'cash' route as it becomes more lucrative, particularly if the business mileage is fairly modest & hence running costs for a car sourced yourself are kept under control so to speak.

One area to take into a/c (I think) is the Inland Revenue rule regading mileage rates. The IR have an official rate of 40p per mile - if after taking the cash option your employer pays you a lower mileage amount (ours is 12p), the difference (i.e., 28p) can be reclained against your tax bill for the year at your marginal rate.

By way of example, if your business mileage is say 6,000 miles per annum then you firstly claim 6,000 x 12p from the employer (£720) and then 6,000 x 28p = £1,680 from the Inland Revenue... at 23% tax this is worth another £386.40 per year & for a 40% taxpayer £672. Final result is that for 6,000 business miles you get either £1106.40 or £1392.

All this actually means is that you get reimbursed for more than the cost of the fuel (@ 40 mpg this example would use 150 gallons which even @ £4 per gallon would only cost £600) - the 'difference' needs to be taken into a/c against the tax / NI cost of taking the cash in the first place.

To be honest it isn't a straightforward decision - it needs to take into a/c depreciation on the vehicle - this is always a bit of an unknown & of course none of us have a crystal ball to forecast repair costs etc. Some people (particularly higher mileage drivers) go for a lease option either personally or via an employers scheme preferring the peace of mind that they won't get stung on depreciation or running costs.