Company Car / Car Allowance Questions

owainjones

Hi,

I've currently got a company car, but have been given 12 months notice that it is to be replaced with a £5000 / year car allowance instead.

I've got a few questions...

1) Is the £5k/year taxable?
2) I will need to take out a personal loan to initially purchase a vehicle - can I claim tax relief on the interest as I'm using it to purchase a car for work use?
3) I was going to open a separate "Flexi Savings" account and transfer the car allowance from my main current account to the savings account on a monthly basis and pay off the loan from that, then leaving the remainder in that account to pay for tax/insurance/servicing etc.

Would that be the best way to do it? Any other hints/tips for this setup going forward?

Many thanks!

Rain_Shadow

1. Yes
2. No
3. If it works for you

DoaM

You should really do some analysis ... you may well find that £5k is a lot less (equivalently) to what you currently get as benefit in kind for your company car. Remember also that you'd have to also account for insurance, servicing and other maintenance costs.

Rain_Shadow

DoaM wrote: »

You should really do some analysis ... you may well find that £5k is a lot less (equivalently) to what you currently get as benefit in kind for your company car. Remember also that you'd have to also account for insurance, servicing and other maintenance costs.

The OP doesn't appear to have been given a choice.

I've currently got a company car, but have been given 12 months notice that it is to be replaced with a £5000 / year car allowance instead.

DoaM

Perhaps. And perhaps the OP hasn't even thought to question the amount being offered, and may be in a much stronger position to negotiate a better deal if OP does some analysis?

(I'm speaking from experience. Some of my colleagues from another division were faced with the same event. Those that did the analysis managed to negotiate a much better deal (~£2k per annum extra) than those who simply accepted what the company told them).

jimjames

Check what the requirement is for the vehicle. My wife gets a car allowance of a similar amount. The car she has is a 16 year old VW Golf. If it's not specified it doesnt need to be new and I certainly would try to avoid a loan.

Also remember you can claim tax relief on the difference between your mileage rate paid and the HMRC level

AdrianC

owainjones wrote: »

2) I will need to take out a personal loan to initially purchase a vehicle - can I claim tax relief on the interest as I'm using it to purchase a car for work use?

No, not least because you don't need to borrow money to purchase a car. You do not need to own the car. You could lease it, PCP it, or otherwise finance it, meaning you don't have that upfront purchase.

OTOH, you don't have an asset, either.

dannyrst

jimjames wrote: »

Check what the requirement is for the vehicle. My wife gets a car allowance of a similar amount. The car she has is a 16 year old VW Golf. If it's not specified it doesnt need to be new and I certainly would try to avoid a loan.

Also remember you can claim tax relief on the difference between your mileage rate paid and the HMRC level

I thought it was an allowance, effectively a bonus. Can an employer specify which cars you can buy?

AdrianC

dannyrst wrote: »

I thought it was an allowance, effectively a bonus. Can an employer specify which cars you can buy?

Absolutely. They're paying an amount specifically intended for you to supply a vehicle suitable for your use on company business. They definitely get to specify what that means.

DoaM

The car policy at my company states that the vehicle must be diesel and have 4 driver/passenger doors. Whilst there can be some relaxation of the policy for people with the allowance, the company can still insist that the policy is followed - after all, they're the one giving you the money for the car (rather than arranging the supply of the car themselves).

dannyrst

AdrianC wrote: »

Absolutely. They're paying an amount specifically intended for you to supply a vehicle suitable for your use on company business. They definitely get to specify what that means.

Interesting. I always assumed it was just a bonus, like for example I get a bonus for being on-call. Never needed/had a company car.

Will certainly take note for future if a job comes along with a company car allowance.