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Company car or cash allowance - thoughts please

Hi all,

New to posting but have found the forum super helpful in the past! I'd really like your thoughts on the below and any advice you can give.

I have recently been offered a new job which comes with the perk of either a company car or a cash allowance. I am trying to decide which would be the best approach that would be a balance between cost effectiveness and having a reliable car. I will need to drive for work, but I am unsure the number of miles required. For this example, let us assume it'll be approximatley 10,000 miles per year. I know for definite that business expenses and miles will be reimbursed in full by the company regardless of whether I take the company car, however, I am unsure if personal miles will be covered in any form.

I only have the 2017 list of cars available for now but the options available include:
  • Audi A3, A4 Avant, A6 Saloon
  • BMW Series 1, 2, 3, 4, and 5 (Saloon and sportshatch selections)
  • VW Gold, Passat, and Touran
  • Mini Hatch, Clubman
  • Citreon Grand C4 Picasso, DS Automobiles DS Hatch

There is no limit on mileage per year.

If I get a company car, insurance will be covered by the company (including for my partner for personal use), plus any repairs, MOTs, and even my first accident (where I am to blame). I will need to keep the car for 4 years or 100,000 miles, whichever comes sooner. At which point, I will then be able to choose another new car. I am not too fussed about having a brand new car: my partner recently bought a 2 year old in-warranty car with 15k miles on it for less than half the cost of a new equivalent (£10k v £23k).

In terms of money, the difference between (a) taking the car allowance and paying 40% tax on it, and (b) taking the car and paying 40% benefit-in-kind tax on it, is around £6k per year.

Questions:
  • Am I missing anything in my calculations for which is the most financially viable option?
  • If there is not enough information in the above to make a decision, what would be the deciding factors? Fuel? Business expenses? Types of cars?
  • Does it basically come down to whether I want a NEW car every 4 years?
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Comments

  • DoaM
    DoaM Posts: 11,863 Forumite
    10,000 Posts Fifth Anniversary Name Dropper Photogenic
    edited 26 October 2018 at 1:46PM
    https://forums.moneysavingexpert.com/discussion/5912888/spending-car-allowance

    Probably best just reading that thread - I think it covers what you're asking.

    I reckon your calculation is somewhat askew ... I highly doubt there's a £6k difference is taxable outlay between taking the allowance and taking a company car. Are you including fuel benefit in the BIK calculation? (Unless you get a fuel card whereby the company pays for ALL fuel then you don't factor that into the BIK calculation).
  • Zana2018
    Zana2018 Posts: 16 Forumite
    Thanks for the link. I've read the thread, but the OP didn't seem to have a choice between a company car and allowance, only the allowance. So there wasn't much of a comparison.

    The £6k calculation was based on the BMW S5 series car as an example they provided me. And it is the net difference between having the company car versus taking the cash allowance.

    Regarding the fuel benefit, I'm not too sure what you mean by this. With the company, I may also get a credit card, which I might be able to buy fuel on. However, the more likely scenario, it that I will have to expense business miles travelled and claim back fuel costs (most likely at 45p per mile up to 10,000 miles). Unfortunately, I will not know this until I start.
  • Unless you either, (a) you do very low mileage or (b) want something that isn't offered by the your company's scheme or (c) the cash alternative is particularly generous then I would be tempted to go with the company scheme as there is always the risk that any money gained by making your own arrangements might be lost due to an accident, theft, etc.

    I write as somebody who opted out 12 years ago due to (a) and (b) above
  • Zana2018
    Zana2018 Posts: 16 Forumite
    Lucky_Duck wrote: »
    Unless you either, (a) you do very low mileage or (b) want something that isn't offered by the your company's scheme or (c) the cash alternative is particularly generous then I would be tempted to go with the company scheme as there is always the risk that any money gained by making your own arrangements might be lost due to an accident, theft, etc.

    I write as somebody who opted out 12 years ago due to (a) and (b) above

    Thanks for the input, I didn't realise I missed out the cash allowance amount on my original post, the offer is either a company car or £6,800 cash allowance. My net calculation for the above was for a car that was worth £36,665 (as per the 2017 list provided) with a tax rate of £3,664.50 (also calculated on the 2017 list provided to me for the 40% tax bracket)

    My concern with going with the company car is that I should be able to find a secondhand car and maintain it way more cheaply and therefore save some of the £6,800 allowance after tax.

    You are right though, having to pay insurance, repairs, MOTs for my own car is one of the deciding factors. Plus I would never be able to go for a car like they're offering, eg. BMW, Audi, VW, as they'll be significantly more expensive.
  • DoaM
    DoaM Posts: 11,863 Forumite
    10,000 Posts Fifth Anniversary Name Dropper Photogenic
    Zana2018 wrote: »
    Thanks for the link. I've read the thread, but the OP didn't seem to have a choice between a company car and allowance, only the allowance. So there wasn't much of a comparison.

    That thread does show comparisons between the 2 though.
    Zana2018 wrote: »
    The £6k calculation was based on the BMW S5 series car as an example they provided me. And it is the net difference between having the company car versus taking the cash allowance.

    https://comcar.co.uk/companycar/tax/calculation/?startYear=2018&ucid=14744930&grossSalary=50000

    That shows a monthly tax of £336.14, or £4,033.68 per year for the cheapest 5 series saloon.

    https://comcar.co.uk/companycar/tax/calculation/?startYear=2018&ucid=14744989&grossSalary=50000

    That shows a monthly tax of £560.18, or £6,722.10 per year for the most expensive 5 series saloon.

    (In both cases a salary of £50k has been assumed).

    For there to be a £6k difference in tax between an allowance and a company car means you'd be paying tax of £722 per year on the allowance, making the allowance value only about £1800 per year or £150 per month. As I said, I think your figures are mixed up somewhere.
  • Zana2018
    Zana2018 Posts: 16 Forumite
    I'll look at that post in more detail again. For the calculations, here the numbers:

    Base salary £57k
    Car allowance £6.8k
    Tax payable on car allowance (plus NI, student loan, tax): £3,468
    Take home allowance: £3,332

    Minimum tax payable on car = 40% on £6,800 (as per changes in April 2017): £2,720

    Difference in take home pay between taking car allowance versus company car: +£3,332 versus -£2,720 = £6,052 difference


    The price that the company quote for cars is different from the manufacturing website, whether it's because they get a specific private deal I don't know. But the series 5 BMW saloon series was shown as £36,665 on the list provided to me.

    Hope that helps, but I could just be confusing myself and situation more than necessary.
  • Difference in take home will be the net value of your allowance plus the tax you would have to pay on the company car
  • I'd have thought the Beemer would be a lot of tax. I pay £370 pm on a Jag XE black edition, retail is about £39k. No direct experience but a colleague of mine has and he said he has taken the allowance in the past (we cant at current company) and it was better and he made money. But of course if you have it on a PCP type agreement you're stuck with it it if you leave.
    I like the company car route as there isnt any unexpected bills, especially when you hand it back, but it does cost a lot. Hey its only money
    One man's folly is another man's wife. Helen Roland (1876 - 1950)
  • Zana2018
    Zana2018 Posts: 16 Forumite
    Just as an update, I've decided to take the car allowance. I'm writing this in case anyone looks up this post for their own dilemma.

    Basically the reasons why I have decided on the car allowance are:

    (1) I'm not bothered by having a new car, nor that the quality is that of an audi or BMW. I'm happy with a nearly new (but used) car, of a lower but still distance standard.
    (2) Having the car allowance gives me £3.3k more earnings per year, coupled with not having to pay tax on the company car, I'm saving a lot of money that can be spent on a nearly new car, and then after 3 years, I'll be in profit.
    (3) By buying the car, I will have an asset, so after 4 years (when I would need to hand back the company car), instead I will have mine still. After a few more years, nothing is stopping me from reselling it and upgrading to a newer/different model.
    (4) I'm not tied to my company for use of the car or the type of car to get

    Cons for the decision I have made
    (1) I will have a lower quality car, purely because I'll be buying it myself and trying to save money in the long run
    (2) There will be more hassle to sort out insurance, repairs, services, MOTs etc. However, I am looking at a car that still is in warranty so this will migitate some of those issues.

    I now have to spend time decided on a car, for anyone in a similar dilemma to me, the types of cars I am considering are:
    - Seat Leon
    - VW Golf
    - Skoda Octavia
    - Hyaundi i30

    Most likely I'm going with the Hyaundi i30 because of its 5 years warranty and extra features; plus my partner already has a Seat Leon so we don't want 2 of the same.

    Thanks everyone for the input on this. :T
  • Clive_Woody
    Clive_Woody Posts: 5,888 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    I reached pretty much he same conclusion a few years back. I took the cash allowance and have not regretted it. I'm very happy with my Skoda Octavia, which I got as a 6 month old ex-demo with over £6k off list price with a long list of optional extras. For those interested in badges a Skoda will hold little appeal but seeing as I do low mileage the 245 Octavia vRS makes me smile a lot and is a great car.

    I move companies every couple of years or so and by having the allowance I keep the car and when it's paid off I have something to show for the allowance and an asset to part-ex when I decide I fancy a new car (which won't be for a long time).

    I for one fully support your choice :-)
    "We act as though comfort and luxury are the chief requirements of life, when all that we need to make us happy is something to be enthusiastic about” – Albert Einstein
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