Company Car/Car Allowance and resulting changes to tax code

jonnyfingers

Hi all,

Finally got the offer letter for a new job today. The salary will be £41k basic with the choice of either a company car and fuel card that will cover private mileage, or a car allowance worth £4k. The company car would be a Focus Estate or equivalent.

I've done a lot of research and have a excel sheet trying to work out which choice would leave me better off financially but I'm unsure of how either benefit will affect my tax code.

I'm currently have the normal 810L tax code. Will this change if I take the company car, or car allowance, or both? And if so by how much?

Also if I take the company car, if my tax free allowance reduces do I also pay the BIK tax on the car and the fuel as well?

Lastly if I take the car allowance does that just get added to my basic salary and the tax man will just tax me normally on a gross income of £45k?

Without knowing what my tax free allowance will be I really can't work out my take home pay. Can anyone help?

jimmo

Dare I suggest that you should not worry too much about your tax code for now?

Much better, I think, for you to establish what your tax liability will be and what other financial consequences may arise.

If you take the £4k car allowance you are correct that, for tax purposes your salary will increase by that £4k and you seem to have understood the effect on your tax liability but you haven’t mentioned National Insurance.

Roughly speaking, that part of the car allowance which is liable to tax at basic rate (20%) will also be liable to NI @12% but the part which is liable to tax at higher rate (40%) will be liable to NI @ 2%.

If you take the company car then, using your own figures from your post dated 25 July on another thread, you will have total benefits of £6044. However, from your point of view, the benefits will attract tax liability but not National Insurance.

So, taking a company car will cost you more in tax but less in NI than taking the car allowance.

Business Mileage

With a company car this is straightforward enough. Your employer supplies the car, pays for the fuel and there are no tax consequences.

With a car allowance you may well find that your employer will pay you a mileage allowance but HMRC will allow you to claim tax relief on 45 pence per mile for the first 10,000 business miles and 25 ppm for anything over that.




http://www.hmrc.gov.uk/paye/exb/a-z/m/mileage-expenses.htm

The practical effect is that if your employer pays less than the HMRC Approved Rate you can claim tax relief on the balance.

Private Mileage

With a company car with fuel card this is straightforward enough. Regardless of how many private miles you do you will pay tax on the fuel benefit.

With a car allowance this is also straightforward enough. You do the private miles and you pay for the fuel.

As you say you do 15,000 miles a year it seems very likely that paying tax on a fuel benefit would be a lot cheaper than paying for the fuel used but this is just one aspect that you cannot isolate. You have to look at the overall picture.

Your Car

In business or commercial terms your 07 Vectra is an old banger. Are you sure that your employer will be happy to pay you £4k pa to drive a car that is probably worth less than that?

Does the employer have a policy?

If you are going to use your own car for business journeys you, absolutely, have to have insurance cover for business use. When I did it, it cost me nothing.

Coming back to your question about tax codes HMRC will always be playing catch up.

If you get a company car in September your tax code will have been wrong from April to September. If you use your own car you wont be able to claim tax relief until after the end of the tax year.

Either way, your tax codes are going to be wrong and there is not a lot you can do about it.

getmore4less

the tax code changes to take account of the BIK,

Work it all out on your normal tax code.

jonnyfingers

Many thanks for your replies guys.

I've spoken with my new company about the car allowance rules and the car has to be a standard 4-door and not older than 6 years old. So it does look as if I'd have to change my car eventually but it will probably be ok for a year. They only pay 15p per mile on business mileage so I'd have to claim the rest back from the government.

Also he mentioned if I take the car my tax free allowance would drop by about £1000 which is less than I thought. But I won't take that as gospel truth.

So it seems as if the car might be a better option but I'll crunch the numbers as well. One potential stumbling block is my licence. It seems the company insurer may need a UK licence but I'm currently using my Irish licence which is valid for another 18 months. I want to swap it for a UK one but it seems this can take some time and I have to send my passport with my application which won't be possible for a few months. So may have to take the allowance!

But thanks again for your replies. They've certainly helped me.

CLAPTON

jonnyfingers wrote: »

Many thanks for your replies guys.

I've spoken with my new company about the car allowance rules and the car has to be a standard 4-door and not older than 6 years old. So it does look as if I'd have to change my car eventually but it will probably be ok for a year. They only pay 15p per mile on business mileage so I'd have to claim the rest back from the government.

Also he mentioned if I take the car my tax free allowance would drop by about £1000 which is less than I thought. But I won't take that as gospel truth.

So it seems as if the car might be a better option but I'll crunch the numbers as well. One potential stumbling block is my licence. It seems the company insurer may need a UK licence but I'm currently using my Irish licence which is valid for another 18 months. I want to swap it for a UK one but it seems this can take some time and I have to send my passport with my application which won't be possible for a few months. So may have to take the allowance!

But thanks again for your replies. They've certainly helped me.

just to note that you don't claim the difference between 45/25ppm and 15ppm from the taxpayer; you claim the allowance against tax which is of course a lot less.

ian103

with those numbers I would suggest a modern diesel eco focus with fuel card assuming you do about 10-12k private miles may be the better option - known cost and limited risk - own car risk, depreciation, servicing, tax, insurance et al. 15p per mile is probably not enough, OH gets 16p and that just works on a diesel A5 and she drives like miss daisy. use this link http://www.whatcar.com/car-news/what-car-company-car-guide-2012/263646


"just to note that you don't claim the difference between 45/25ppm and 15ppm from the taxpayer; you claim the allowance against tax which is of course a lot less". - spot on so either 20% or 40% of the difference depending on your tax rate.

jonnyfingers

Ah forgot about that when it comes to claiming back the mileage.

As it is the car is looking the better choice, especially as I'd have to change my own car next year and I'm still paying back a loan on a car I used to own in Ireland. When the economy went south I had to sell it for peanuts! So financing a new one would be a hassle.

As always you've been most helpful. Many thanks.

sheddragger23

If it helps i came across this handy comparison site that let me compare car allowance against company car to see which i am better doing and shows the true cost to me. In the end I chose car allowance. it is on mysaleshelp.com then select car calculator