Car Allowance - is it better to salary?

themilkman23

I work in an organisation where a lot of people have company cars but when I started was given a car allowance.

I realise if I had a company car I would lose this allowance and would also be taxed extra on the company car benefit so doesn't seem worthwhile looking into that at the moment.

My question is is it worth having the car allowance at all or should I look into perhaps asking for this to be converted to my salary.

The reason for this is that in a meeting with a pension advisor recently they advised that this wouldn't get taken into account for my pension contributions - so if I'm getting taxed on it normally why would I want it as a separate payment not all in as salary?

The car allowance is £6k per annum.

Thank you for any advise.

gingerdad

alot would depend on how much the allowance is, what restrictions on the type of car and what tax band you are in...

gingerdad

should also add what car would the company give you in return that affects the amount you'd pay in tax

martinsurrey

Themilkman23 wrote: »

I work in an organisation where a lot of people have company cars but when I started was given a car allowance.

I realise if I had a company car I would lose this allowance and would also be taxed extra on the company car benefit so doesn't seem worthwhile looking into that at the moment.

My question is is it worth having the car allowance at all or should I look into perhaps asking for this to be converted to my salary.

The reason for this is that in a meeting with a pension advisor recently they advised that this wouldn't get taken into account for my pension contributions - so if I'm getting taxed on it normally why would I want it as a separate payment not all in as salary?

The car allowance is £6k per annum.

Thank you for any advise.

Companies generally give a car allowance specifically so it doesn't form part of salary for bonus/pension/redundancy purposes.

Also pay rises are done on salary, while car allowances generally don't rise as much (or more lumpy, no rises for 3 years then a 10% rise).

In short, an employer would be stupid enough (I hope) to remove your allowance and just add it on to salary.

themilkman23

I get £6k car allowance and there is zero restrictions on what I can do with it, it's just paid as £500 a month which is then taxed as normal to my knowledge.

I'm not looking to have a company car in exchange for it, I'm wondering if I should be asking for that £6k to be added into my basic salary and keep the car I currently have.

It seems to me having the amount as a car allowance has negatives and no positives for me.

The negatives being that the company do not need to pay pension contributions on it and for example if I go to remortgage in the future would the bank count it towards what they would offer or exclude it?

martinsurrey

themilkman23 wrote: »

It seems to me having the amount as a car allowance has negatives and no positives for me.

The negatives being that the company do not need to pay pension contributions on it and for example if I go to remortgage in the future would the bank count it towards what they would offer or exclude it?

Negatives and no positives for you, means positives and no negatives for your employer, why would they agree to change?

most banks include car allowances as 100% income for mortgages

themilkman23

martinsurrey wrote: »

Companies generally give a car allowance specifically so it doesn't form part of salary for bonus/pension/redundancy purposes.

Also pay rises are done on salary, while car allowances generally don't rise as much (or more lumpy, no rises for 3 years then a 10% rise).

In short, an employer would be stupid enough (I hope) to remove your allowance and just add it on to salary.

Thanks for that.

My thinking was that it's in my interest to ask for it to be switched to salary as there were more negatives than positives but wanted to check that there wasn't anything that I hadn't thought of.

booksurr

as you have not done a comparison between the allowance and the tax cost getting whatever company car you will be allowed to have it is impossible to answer your initial question

themilkman23 wrote: »

My thinking was that it's in my interest to ask for it to be switched to salary as there were more negatives than positives but wanted to check that there wasn't anything that I hadn't thought of.

as for converting the allowance to salary, yes that would be in your interest and is precisely why your company is highly likely to refuse since it will cost them more money to pay it as salary

themilkman23

booksurr wrote: »

as you have not done a comparison between the allowance and the tax cost getting whatever company car you will be allowed to have it is impossible to answer your initial question

Sorry, perhaps I didn't explain it properly, I'm not looking to get a company car or look at those options.

My question was purely in relation to whether there were any negatives in requesting it as salary instead of car allowance which I don't think there is from the responses.

Thanks for everyone who replied.

singhini

themilkman23 wrote: »

My question was purely in relation to whether there were any negatives in requesting it as salary instead of car allowance.

You can ask your employer (and if I was in your shoes I would do the same as its no difference to you), but your employer might not want to do this for a couple of reasons i.e.

(1) If he now ups your salary by £6,000 he will also expose himself to paying more into your pension.
(2) Your employer will also need to now pay extra NI on this £6,000 (its not just you who pays income tax and NI on salary, your employer also has to make contributions to the taxman).
(3) when your employer gives your colleagues a car, the employer claims some form of tax relief i.e. things like VAT). This is also true of paying employees a car allowance........ the company accountant will be claiming this as a business expenses / operating costs which for accounting law is treated differently to salary as an expense.
(4) The employer might expose himself to HR issue i.e. another employee takes them to a tribunal saying they are being paid less and thus wage discriminated against as their on less money for doing the same job as you.
(5) your salary is all-of-a-suddenly £6,000 more and guess what you leave (you got poached by your biggest competitor because they perceive you must be excellent to be on the money you are).
(6) Your employer can change your car allowance at any time (even change your T&C of employment and require you to have a car some time in the future), BUT it cant take back £6,000 off your salary so easily.

booksurr

singhini wrote: »

(2) Your employer will also need to now pay extra NI on this £6,000 (its not just you who pays income tax and NI on salary, your employer also has to make contributions to the taxman).

no, a car allowance is already subject to employer national insurance, therefore converting to "pay" will not increase the employer's costs in respect of NI as they already have to pay ER NI.
There is one way to reduce the employer's NI and that is to have car allowances whose size is proportional to the number of business miles travelled. That was the ruling coming out of a test case but there are specific steps which must be followed and it can lead to people of the same seniority level in the company getting different allowances paid depending on their mileage, so makes HR relations more complex!

singhini wrote: »

(3) when your employer gives your colleagues a car, the employer claims some form of tax relief i.e. things like VAT). This is also true of paying employees a car allowance........ the company accountant will be claiming this as a business expenses / operating costs which for accounting law is treated differently to salary as an expense.

? a company can never recover VAT on the purchase of a company car if the car is given to an employee for private use.

Also a car allowance is a cost for the business in exactly the same way as a salary is a cost for the business, no idea what difference you think there is in terms of company profit calculations?