Is car allowance or company car better

tanvir

Hi,

Can someone tell me how I know if a company car is better or car allowance. I have just accepted a new role and have to tell them by monday what I prefer.

I have calculated the BIK will be 5200£ or I can have cash allowance of £5500 per year.

To work out which is better do I just apply my income tax band on these figures and then which ever is lower is the best deal?

Please help not sure what I'm meant to be looking for here to determine a better deal as first time experiencing this.

molerat

You will pay tax on £5200 or tax & NI on £5500. That is only the basics, you also need to take into account personal use fuel or mileage allowance and wear and tear maintenance of your own car for the overall picture. https://www.gov.uk/tax-company-benefits/tax-on-company-cars

Sibbers123

Under the car allowance you will pay tax on £5,500 at a minimum. Under the new salary sacrifice rules, you will be taxed on the higher of the benefit in kind calculated using the normal rules and the car received. Therefore, it all depends on what car you get.

If your new employer isn't aware of these changes, it is definitely worth a mention.

These rules will apply to all new arrangements and from all existing arrangements after 5th April 2021

tanvir

Sibbers123 wrote: »

Under the car allowance you will pay tax on £5,500 at a minimum. Under the new salary sacrifice rules, you will be taxed on the higher of the benefit in kind calculated using the normal rules and the car received. Therefore, it all depends on what car you get.

If your new employer isn't aware of these changes, it is definitely worth a mention.

These rules will apply to all new arrangements and from all existing arrangements after 5th April 2021

What do you mean by "higher of the benefit in kind" do you mean it will be taxed at the highest band even if im not on it?

Sibbers123

The higher of the benefit kind calculated under the normal rules or the cash allowance you receive.

tanvir

molerat wrote: »

You will pay tax on £5200 or tax & NI on £5500. That is only the basics, you also need to take into account personal use fuel or mileage allowance and wear and tear maintenance of your own car for the overall picture. https://www.gov.uk/tax-company-benefits/tax-on-company-cars

The company car can be used for personal use as well but will be deducted from monthly salary.
I do less than 5k personal miles a year. In your opinion is it better to take a company car or allowance based on information so far?

tanvir

Sibbers123 wrote: »

The higher of the benefit kind calculated under the normal rules or the cash allowance you receive.

I think i'm still missing the point here (sorry!) Can you put it in an example so i follow.

Really appreciate your help

tanvir

tanvir wrote: »

What do you mean by "higher of the benefit in kind" do you mean it will be taxed at the highest band even if im not on it?

To clarify do you mean the higher of the amounts. So the BIK is £5200 while cash allowance is £5500..

So are you saying £5500 will be taken even if I take the car?

Dazed_and_confused

I think Sibbers123 might be referring to something which doesn't necessarily apply to everyone who has a company car.

Would be helpful if they could clarify this as outside of salary sacrifice I thought you would be taxed on which option you plumped for. So if took the car under a normal company car arrangement you would pay tax on the £5,200 car benefit. Not £5,500.

On-the-coast

a couple of observations:
1) it seems unreasonable for you to be making a decision which will probably affect you for several years (3 or 4 is common) without full understanding of the costs and benefits (which you clearly lack). Ask for a delay in making the decision.
2) you need to be clear on whether you’re taking a company car because you need it to do your job, or because it’s a perk of the job itself.
3) What about insurance, maintenance & servicing? These are usually included in company car deals.
4) if you’re mainly using your car to “get to work” then usually taking the company car deal (and paying the BIK tax - which is the BIK value x your marginal tax rate) is only a good deal if you’re a high mileage driver.
5) BIK rates change. Check what they’ll be for the next two tax years.
If this is a normal company car deal... then if your driving 20K miles+ per year, go for the company deal.
Much less than 10k miles per year, self finance... and in between is a grey area!