Company Car v Car allownace

MAS75

Hi all

I've recently accepted a new job and have the option of opting out of a company car scheme and into a car allowance instead.

I'm clear on how this works, and the amount I will be paid as an allowance as well as the tax benefits etc, however there is one aspect which has confused me somewhat.

If I choose the car allowance, rather than paying me at a rate per mile the company will give me a fuel card to cover fuel costs and expect me to pay back for personal mileage. This doesn't take into account any wear and tear and I cannot work out how to then calculate what would be due in tax rebate from HMRC at the 45ppm and 20ppm rates. I would expect to be rebated to these levels against whatever the company would pay as a mileage allowance.

Can anyone shed some light on this for me?

Also, is the tax relief I mention here only claimed annually?

Regards

MS

Regshoe

As I understand your description what will happen in this case is that you buy all of your fuel (for business and personal miles) with the fuel card, then pay back your employer for the amount used for personal mileage, using the approved HMRC rates.

So for example if you do 10,000 miles and 5,000 are personal (personal in this case includes normal commuting) you would pay your employer for 5,000.

The rates can be found here:

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm


For example a 2.2 Diesel would be 18p per mile - so 18p x 5000 = £900. Note this should be taken from your salary after paying tax. How frequently they do this would be up to your employer, though I assume if it's a monthly payroll they would align to that and do it monthly.

In the above example you would have done 5,000 business miles reimbursed at 18ppm, your employer could have paid you up to 45ppm tax free so you can then claim tax relief of the difference from HMRC.

So (45-18) x 5000 = £1,350.

You can then fill in form P87 to claim this as an expense (or add it onto your tax return if you already do one) and receive tax relief of the difference, so:

20% x 1,350 = £270 rebate if you are a lower rate tax payer, or double that if you are higher (40% x £1,350 = £540).

You would submit form P87 annually after the end of the tax year.

The exact situation above, where fuel is provided, but then private mileage is reimbursed and a claim for the difference between the value of the fuel provided and the mileage rates doesn't seem to be a specific example of the HMRC site, but it is my interpretation of how the various rules interact.

jamesml

I think you are confusing 2 things here - if the company give you a fuel card, then they pay that fuel card for you. Therefore they don't pay you 18ppm for your 5,000 business miles (as they have paid the full cost of the fuel) and you can't claim 45ppm.

If they give you a fuel card, then they will either meet the cost of your private fuel for you (in which case you get taxed on this as a benefit), or you will be required to make good your private fuel cost (and you won't then be taxed on it).

If you were doing business mileage in your own car, then you can claim back business mileage at up to 45ppm for the first 10,000 miles. If you got paid less than 45ppm, then you could claim the tax back on the difference on a P87.

jamesml

I think you'd have to ask them to be honest, I'm not sure how that would work.

jennifernil

I think the calculation of what you can claim tax relief on is fairly simple.

If you do say 10000 business miles in your own car you can be paid up to 45ppm tax free, which is £4500.

If all your fuel is paid for by your employer, and you repay them for your private fuel, then you should subtract from £4500 the amount they have paid for the business fuel, and claim relief on the difference.

The only tricky bit to my mind is working out how much you should repay if your employer requires you to pay for your own private mileage fuel, you would need to ask them how this will be calculated.

You will of course not get the £4500 you could be paid by your employer, but presumably they feel that the fixed car allowance makes up for this.

Which option is best (company car or own car) will depend on how far you drive, what car you own, the costs involved in running it, what CC you would get given, and the amount of the alternative fixed allowance.

That is quite a complicated calculation.

Delphina

When you say car allowance, do you mean using your own car and getting paid from your company per mile for that? The fuel card also pays for business fuel only.

It depends on how much the employer pays you. If it is lower than what HMRC allows then you can claim the rest from HMRC on a P87 or sometimes Self Assessment form. This will cover everything such as wear and tear, in HMRC's views. If what your employer pays you are above HMRC's limits then the excess will be taxable at your highest rate of tax. You will receive a P11D that shows this and thereafter you may see a deduction in your tax code for that.

Also bear in mind that, if what you get from the employer is below HMRC limit, you will only get whatever you need to claim from HMRC back at your highest rate of tax.

For example, if you do 10,000 miles per year and your employer give you 10p per mile, you then claim 35p per mile from HMRC which is £3,500. You will not receive £3,500 but you will receive £700 if your highest rate of tax is 20%, or £1,400 if your highest rate of tax is 40%.

At the end of the day, you have to do the calculation to see if using your own car is better than having a company car (taking into account the make, price, etc. to get the NCAR value). If you pay tax at 20%, maybe a small company car that has low NCAR figure and no fuel benefit is better for you.

nomunnofun

Delphina wrote: »

You will not receive £3,500 but you will receive £700 if your highest rate of tax is 20%, or £1,300 if your highest rate of tax is 40%.

Typo? £1400

Delphina

nomunnofun wrote: »

Typo? £1400

Thanks. Yep, it should have read £1400. :T