Company Car - Is it worth it?

caz6caz6

Hi,

I've recently secured a job which comes with a company car as a business need (i.e. my employer deems the role requires it as opposed to it being offered purely as a perk of the job) but I want to understand if it makes financial sense for me to take one or not. I can't think what the calculation would be and where to start!

I do about 12k personal miles/year and estimate that I will do about 5k business miles/year. I have a variety of levels/specs of company cars available to me but haven't looked at them yet - I'd most probably consider a Focus or A3 2.0Ltr Diesel, 2nd or 3rd down from top spec.

If I took a company car I am allowed to use it for personal mileage and only fuel costs for business mileage are reimbursed at a very low pence per mile - something like 12p I've heard.

If I don't take a company car, there is no cash allowance available as an alternative but I am able to hire a car for business trips and claim actual fuel costs (the amount on the receipt) or use my own car and claim mileage at 42p/mile I think it is.

I bought an ex-demo private car for £19k 12 months ago - it's just over 12 months old now and has 13k miles on the clock. I love this car and am reluctant to sell but I would if it made financial sense to.

Where do I start in making a decision and what numbers do I need? I had heard you have to do very high mileage to make it worth having a company car ...but is that only the case when a cash alternative is available?

Many thanks
Carolyn

purdyoaten

blondebubbles wrote: »

How much a company car will cost you will depend on the list price, CO2 and your tax band. It will also depend if you employer will pay for any private fuel. There is a calculator here to see how much it will cost you - https://www.gov.uk/calculate-tax-on-company-cars

One good thing about a company car is that you won't need to pay the road tax, insurance, repairs etc.

Indeed - nor get hit by the biggest cost - depreciation.

A more than decent company car would attract a benefit in kind charge of about £5000. The tax on that for a basic rate taxpayer would be £1000 per annum. Would one's insurance, repairs, tax combined be more than that? Hmmmm!

Factor in the purchase price of a car and possible HP interest and the company car still represents ggod value if one can put up with not actually owning the car.

Spidernick

Yes, a company car is still quite often good value, even though the taxable benefits have gone up markedly in the main over the past twenty years or so. To think you could once reduce the benefit by driving the car more (to get over the 2,500 and 18,000 annual business mileage) - seems like madness these days!

mgdavid

but if you take the company car, do you sell your own, that you paid £19k for just a year ago? Realistically how much will you lose on it? Two or three thousand? You have to factor that in.
Your estimate of 5k business miles is quite low, if it's accurate I'd use your own and claim the 42P / mile.

caz6caz6

Thanks for the feedback everyone - useful thoughts to ponder...

Regshoe

mgdavid wrote: »

but if you take the company car, do you sell your own, that you paid £19k for just a year ago? Realistically how much will you lose on it? Two or three thousand? You have to factor that in.
Your estimate of 5k business miles is quite low, if it's accurate I'd use your own and claim the 42P / mile.

I would disagree with this assessment. The depreciation to date on the existing car is a sunk cost, that value is gone, regardless of whether the car is sold now, or later after suffering additional depreciation.

What you need to factor in is the future depreciation, based on the existing value. So if it's worth maybe £12k now and you assume losing 15-20% on reducing balance basis then you would estimate depreciation of £1800-£2400 in the next year.

Based on the £5000 BIK given above (which seems like enough looking at the list price and benefit percentages for the sort of cars you are looking at) you would be looking at £1k tax as basic rate tax payer, or £2k as a higher rate.

If we assume 12 p per mile is reasonable as an estimate for fuel costs (with recent drops, probably reasonable for a car with a reasonable mpg, possibly even on the generous side, an efficient diesel could be towards 8-9p per mile currently). So if the business reimbursement is 42p per mile, subtracting 12p leaves 30ppm to cover other car costs. So using your own car for 5k miles at 30p is £1500.

So by taking the company car you would have tax of £1-2k, plus forgo £1500 of payments towards running costs (vs using your own car). So total 'costs' of £2.5-£3.5k. Could you run your own car including depreciation and all other costs (bar fuel) for that amount? A cheap car yes, but not a £20kish new car.

For 'normal' employees efficient company cars can still be quite good value (free fuel less so), but for one man band companies, where both personal and company costs have to be considered they are less attractive.

caz6caz6

Thanks Regshoe - that's really helpful - is it that simple - to compare annual costs to me of company car v own car?
Own car:
£230 Servicing a few weeks ago (probably wasn't a major service though)
£30/yr tax
£230 insurance
Free breakdown's included with the servicing
£2,000 depreciation*
c£2.5k/year Total
*Re depreciation could I get a better idea from Parkers Guide? The car was £26k list price and I bought it as an ex-demo when it was 3 months old with 81 miles on the clock for £19k - I thought I'd dodged that big first step or am I kidding myself?
Company car:
£2,000 Tax
I'm a higher rate tax payer. Is the tax amount the same as a "P11D value"? I think our car system tells me exactly what the values are.

Is it really that simple? Where does the amount of miles I do come in to it? Or was that only a consideration in days gone by...

Appreciate your help.

ironmonkey

If you do the calculation across say 3 years, then the company car will probably end up cheaper. Don't forget the cost of consumables for your private car e.g. new tyres after 20k miles (depending how you drive) new brake pads. Also any unexpected repairs not covered under warranty (if it is still under warranty).

mgdavid

Regshoe wrote: »

I would disagree with this assessment. The depreciation to date on the existing car is a sunk cost, that value is gone, regardless of whether the car is sold now, or later after suffering additional depreciation.

What you need to factor in is the future depreciation, based on the existing value........

far too simplistic a view IMO. It would work if depreciation was a straight line but it isn't, it's a complex curve with the largest depreciation in the first couple of years, flattening for yrs 3-6 then going steep again until it tails off beyond yr 9 to the end of life. If EOL can be postponed to say 15 yrs then it looks good value. Then again the OP has maybe avoided a fair bit of the initial drop by getting a hefty discount but that is recent added information which we didn't know initially.
My BIK for a BMW 318d last year was £5684, @ 40% it's a £2274 hit.
I also disagree with ' with free fuel, less so' as if you have a free fuel card you can usually expect to do a far higher mileage i.e. go places you wouldn't dream of if you were paying yourself, in which case it's a great perk, but difficult to calc the value of improved quality of life. I used to do about 25k miles per annum, all private. But most of my colleagues had given up the fuel card and many had given up the car too as they seemed to never go out anywhere and didn't maximise the benefit.
Again difficult but you should also put a value on the 'hassle-free factor' of running a company car, i.e 'someone else's problem' no matter what happens.