Company car or allowance?

newby2013

Okay, this is my first post so bare with me..

I am due to start a new job in Feb 2013, the basic salary is £38,500 with a £5,700 car allowance, or company car, which I can select from a list.

My question is which will I be better off with? I am getting really confused with the higher rate tax on company cars - If I take the car I will still be at the higher tax rate so does this mean my monthly tax on the car doubles?

for example an audi a4 i have my eye in £82 for 20% tax payers and £164 for 40% tax payers. Do i automatically have to pay double even though i am only just in the higher bracket (38,500)?

or should i just take the full salary of £44,200 (incl car allowance) and buy/run my own car? would this be better from a tax perspective?

I am finding all this very confusing to work out exactly what my take home pay will be. Can anyone help??

Thanks

redmalc

Is the company providing fuel for personal use ,if so you will have a bigger tax bill ?

Wilk

Think the cut off for 20% is £34,700 for basic salary as I am in same situation but just about scrape in 20% and next year or a slight pay rise I will be on the 40%.
I may be completely wrong but that's how it works as far as I can tell.

zagfles

newby2013 wrote: »

Okay, this is my first post so bare with me..

I am due to start a new job in Feb 2013, the basic salary is £38,500 with a £5,700 car allowance, or company car, which I can select from a list.

My question is which will I be better off with? I am getting really confused with the higher rate tax on company cars - If I take the car I will still be at the higher tax rate so does this mean my monthly tax on the car doubles?

The higher rate threshold is £42475 this year and £41450 next year (you need to add the personal allowance to the basic rate band).

for example an audi a4 i have my eye in £82 for 20% tax payers and £164 for 40% tax payers. Do i automatically have to pay double even though i am only just in the higher bracket (38,500)?

You're under the threshold without the car benefit/allowance, the car benefit/allowance will put you over but you'll only pay 40% on the part that goes over, most will be at 20%.

or should i just take the full salary of £44,200 (incl car allowance) and buy/run my own car? would this be better from a tax perspective?

I am finding all this very confusing to work out exactly what my take home pay will be. Can anyone help??

Thanks

Have a look at http://www.cashorcar.co.uk

newby2013

Thanks so much for the replies. If I am understanding this correctly, If I choose the cash allowance (total salary £44,200) I will only be paying the higher rate car tax on the small amount I am over the thresh hold?

So If I take the Audi A4 from my earlier example I would only be paying the higher rate company car tax on the small amount I am over?

On my car list it looks so black and white: 20% rate £82, 40% rate £164, so I guess I technically am on 40% but only on a very small portion of my income?

somethingcorporate

You only ever pay the HRT on the amount over the threshold otherwise you would take home less on £45k than you would on £40k!

zagfles

newby2013 wrote: »

Thanks so much for the replies. If I am understanding this correctly, If I choose the cash allowance (total salary £44,200) I will only be paying the higher rate car tax on the small amount I am over the thresh hold?

So If I take the Audi A4 from my earlier example I would only be paying the higher rate company car tax on the small amount I am over?

On my car list it looks so black and white: 20% rate £82, 40% rate £164, so I guess I technically am on 40% but only on a very small portion of my income?

Yes so you'll be somewhere in between, but more towards the 20% end.

Note also that if you take the allowance, you'll pay NI on it, mostly at 12% and the part over the HRT threshold at 2%, whereas you won't pay NI on the company car benefit.

kidmugsy

newby2013 wrote: »

... If I choose the cash allowance (total salary £44,200) I will only be paying the higher rate car tax on the small amount I am over the thresh hold?
... so I guess I technically am on 40% but only on a very small portion of my income?

Yes, and if you can afford to it's easy to avoid that bit of 40% tax by making a contribution to a pension. In fact, you might be wise to check what the pension rules are at your new employer: he might be a offering you a convenient and economic way to make such a contribution.

Fiamold

As has been discussed above, if you take the cash instead of the car you will pay 40% only on the amount over the 40% threshold.

However, if you are willing to do a Self Assessment, then you can claim back the tax on difference between the HMRC allowance (generally 45p/mile) and whatever your employer is paying (probably just over 10p/mile).

Hometruth

Is it legally right for a company not offer company cars for field based staff and make the cash allowance compulsory for everyone?

paulus

If employee terms and conditions provide for an allowance rather than car then yes, it's legally right. Many employers, though, have company cars so the know the standard of vehicle and servicing in order to mitigate corporate manslaughter risks.