Company car allowance/mileage

richie3484

I am about to start a new role which involves a car allowance. As a novice to this area I was wondering if someone could please help with the process. I will be covering approx.8500 miles per year.

At the interview the employer stated that they offer £3600 mileage or 45p per mile. He said that most employees go for the 45p per mile to avoid being taxed. Im unclear on whether if the allowance is taken the company would give you 10p per mile or somewhere along those lines.

If I took the allowance can I then claim back the 45p/35p (if 10p paid) from HMRC. His statement that most employees take the pence per mile option has thrown me slightly as if you can claim the mileage back then wouldnt people take the allowance and claim the mileage back. My only thinking by this is that you cannot claim this back and my mileage claim with the company is £3825 which is untaxed and more than the allowance.

I hope that makes sense and any help would be appreciated. Thanks

booksurr

normally a car allowance means you get an extra sum in your salary and you will of course therefore be taxed on it at whatever tax rate you pay (20% , 40% etc) just the same as the rest of your salary. If the sum pushes you from 20% to 40% then that is a factor to consider

Your info hints you do not understand the pence per mile payment?

If the company pays you 10p per mile you are entitled to claim the TAX back from HMRC on the difference between what they pay and the approved max (45ppm for the first 10,000 miles and 25ppm thereafter). The number of people who think the Govt will pay them the missing 35p is stunning, it doesn't, it pays 35p x tax rate so at 20% that is 7 pence per mile

It would appear the offer from your company is:
a) extra salary £3,600 plus 10p per mile. On 8,500 miles that would give you (3,600 - 20%(income tax and - 12% NI) + (10p x 8,500) = 3,298 after tax. You would then manually claim from HMRC (8,500 x (45 - 10)) x 20% = 595. Therefore, in total, you would get £3,893 after tax
or
b) no extra salary but 45ppm so 8,500 miles x 45p. Therefore, in total, you would get 3,825 tax free

the difference is marginal and with the car allowance you would have to wait until HMRC process and pay out against your claim.

obviously the above assumes you are a 20% taxpayer so not earning above 42,380 (whereupon the NI rate also drops from 12% to 2%)