Company car allowance question

jdavidson

Hi, looking for some advice.
I have been offered a new job on 41500 with a 6k car allowance but then only 15p per mile.
my current position is 42500 and all mileage is paid at 45p per mile.

is the allowance actually worth it? I've heard I may be able to claim the difference between the 15-45p as a tax rebate, is this correct?

thanks
John

nomunnofun

How many business miles do you do?

You can claim the tax relief on the difference between 15p and 45p - not quite the same thing.

00ec25

assuming you are on a standard 944l tax code then you are a higher rate tax payer in either job (subject to whatever pensions contributions you make)...

job with salary 42500 your annual take home after income tax is 35,678
job with salary 47,500 take home is 38,678

so extra 3,000 net pa for the higher paid job.

at the moment all your business miles are tax free @45p so to "earn" that £3,000 tax free you would need to drive more than 6,666 business miles pa - do you?

nomunnofun

00ec25 wrote: »

assuming you are on a standard 944l tax code then you are a higher rate tax payer in either job (subject to whatever pensions contributions you make)...

job with salary 42500 your annual take home after income tax is 35,678
job with salary 47,500 take home is 38,678

so extra 3,000 net pa for the higher paid job.

at the moment all your business miles are tax free @45p so to "earn" that £3,000 tax free you would need to drive more than 6,666 business miles pa - do you?

You point is well made although I believe that it should read 10000 miles, not 6666 as the op has stated that he would get 15p per mile on the higher package.

jdavidson

hi, miles would be between 10000-15000

jdavidson

also, new job is 41500, not 47500

00ec25

jdavidson wrote: »

also, new job is 41500, not 47500

explain please - do you mean 41,500 including 6k car allowance or is 6k on top of base salary
I shall assume it is on top in which case the 6k is tax as though it were simply extra salary so 47,500

its 45p up to the first 10,000 miles pa, so drive 10k per year:
current job : net salary 35,678 + (10,000 x 0.45 = 4,500 mileage) = 40,178pa
new job : net salary 38,678 + 1,500 mileage + (45ppm - 15pmm = 30ppm x 10,000 x 40% tax relief = 1,200) = 41,378

drive more than 10,000 miles and the rate on the excess drops to 25ppm so say you do the full 15,000 miles:
current job 35,678 + 4,500 + (5,000 x 0.25 = 1,250) = 41,428
new job 38,678 + 1,500 + (5,000 x 10ppm x 40% = 200) = 40,378

note the above excludes the impact of pension contributions and most importantly assumes that your current job does indeed drop the rate from 45ppm to 25ppm. If it still pays you at 45ppm then you will be taxed on the extra money and the above comparison will need to be reworked

jdavidson

in the below calculation have you missed the earning up to 10000 = 1200?

new job 38,678 + 1,500 + (5,000 x 10ppm x 40% = 200) = 40,378

00ec25

jdavidson wrote: »

in the below calculation have you missed the earning up to 10000 = 1200?

yes
I had also left out national insurance and this does need to be included as it will be deducted from the car allowance. NI is 12% between £7,755 to £41,450 (ie 4,043) then 2% thereafter

revised calculation: driving 15,000 miles

current job
salary 42,500 less income tax 6,822 less NI 4,064 (4043 + (42500 - 41450 x2% = 21) = take home 31,614
mileage (10,000 x 45ppm = 4,500) + (5,000 x 25ppm =1250) = 5750
total income current job 31614 + 5750 = 37,364

new job
salary 47500 less income tax 8822 less NI 4,164 (4043 + (6,050 x2% = 121) = take home 34,514
mileage 15,000 x 15ppm = 2,250 + (45ppm - 15pmm = 30ppm x 10,000 x 40% tax relief = 1,200) +(25ppm - 15pmm = 10ppm x 5,000 x 40% = 200) total mileage paid 3,650
total income new job 34,514 + 3,650 = 38,164

Conclusion: the new job pays more but only if you claim the tax relief. The impact of pension contributions on your tax rate could affect the calculation if your contributions in the new job are large enough to bring you down to 20% tax relief

jdavidson

that is great. thank you for your help