Car allowance or company car?

Tracyk_2

Dh has got a new job and has the option of allowance or car.

He will be 40% tax payer. He has a nice merc (paid for by the previous employers car allowance) and will be offered a similar type as a company car.

Or he can take the allowance which I think is about £500 a month after tax.

It would be good to sell on the merc and realise some of the capital tied up in it - but would he get a worse deal tax wise for taking the car?

morgani

would need more info really.

Would the £500 cover his costs for using his own car? Would he also still be allowed to make mileage claims to the company? Guess not but they may be generous?

Do you really want the company car? Would it be an advantage to you?

Would he be reimbursing the company for all private fuel used?

What is the rough cost of the new company car likely to be? and also the CO2 emitions?

If you post the above info then we can give you an idea of the taxable benefit and then its up to you really whether the price you pay tax wise is worth it to you for having the car or if you would prefer the money and use your own car?

Tracyk_2

Thanks Morgani

He would claim any business miles at 13p per mile - but he doesn't anticipate a lot of business miles. He is prob 40 mile a day round trip into the office and back.

He would choose a diesel BMW or Mercedes - though not sure of the models on the list yet. Prob £25- £30k list price.

He does love his current Mercedes that we paid £22k for out of savings 2 years ago. But we have no savings left due to a house renovation this year and I'm a bit twitchy about having nothing left in the bank iykwim.

I've emailed him to find out exactly how much his allowance would be.

DKLS

Why only 13p a mile?. I Thought the standard was 40p a mile for the first 10,000 miles.

Tracyk_2

Yes sorry - you're right. 40p if they give the car, 13p if he takes allowance.

warrend

with my company the minute you are entitled to a car allowance you Pence per mile rate drops to 13p, irrespective of whether you take the cash or the car. You can claim the tax back for 40p (for first 10k) from HMRC in your tax return though (is it 23p after 10k?).

Company cars general aren’t worth it if your doing less than 30k miles per year - at which point depreciation on the car that you would have bought makes the asset less than the income loss over 3 years.

Very rough figures.

say 10k miles per year.
car new:30,000
value after 3 years:18,000
= spend of 12,000
servicing: 2000
insurance: 2000
=16k

with company car
loss of income (3 years): 18,000
extra income tax: 3000
=21k

if you do more miles then the value of the car goes down and
car new:30,000
value after 3 years:12,000
= spend of 18,000
servicing: 2000
insurance: 2000
=22k

Every time I've done the maths on a similar journey I always end up a few grand down by taking the company car, even once you have included tax, servicing and insurance etc.

morgani

If he takes the allowanc then the 13p a mile paid on the 40 miles to and from work would not be covered by the 40p a mile allowance as it is classed as private mileage.

If the car is £25k new and lets say has CO2 emmissions of 190 g/km

The taxable benefit would be £7000 and would cost the equivalent of paying £2800 for a 40% tax payer.

If he does not reimburse the employer for ALL private fuel they pay for then a further benefit will arise of £4032 which is the equivalent of paying £1612.80

Different people will have different reasons for taking or not taking the company car. The only right answer is whats is better for you!

Sorry that I can't give you a full answer but it really is what is best for you

philng

Your calculation has omitted to account for lost interest on £30000 over 3 years at say 4-5% Net this equates to another cost of £4500 or if not paying cash the interest you would pay on a loan. Thus making the difference between the 2 options negligible.

dipsy

oh my head hurts .......am i better keeping my car or having company one

scheming_gypsy

if it was me i'd take the allowance and keep the Merc.
If the mileage is going to be mainly commuting and just a bit of work use you'd be quids in on the allowance and not paying tax on a company car. If he does need to go out occasionally to clients he'll have the choice of using his own car or even possibly hiring one.

Also on the up side, if he finds himself out of work he'll still have a car which won't happen with a company car.

philng

Just done an interesting calculation that I think looks correct


Co Car allowance £375pm or if cash taken £340pm.

40% Tax Payer

If car taken changed every 4 yrs or 70000 miles whichever the earlier.

All maint/tax/ins covered on co car.

Option 1 take co car

BMW 1 series 118d 5 dr Sport

This will cost me £150pm extra over my £375 allowance to account for Co Car tax and additional payment due to exceeding £375 allowance and includes tax deductible allowance based on amount over monthly allowance.

In addition I will not receive the £340 cash each month- net £200.60 pm.

This amounts to a total cost of £350.60 x 48= 16828

Option 2 take cash and buy same car

Deprec £13232

Lost int £ 4400

car ins £2000

Car tax £200

servicing & maint £1000

tyres £500

less fuel tax rebate 10000 miles x 40p minus 10000 x 10p (pd by employer) x 40% x 4 yrs £4800

Total cost 16532

Really not much in it if my figs are correct. Based on these numbers co car seems a good option.