Company car or car allowance help

kerrydrck

Hi just need some advice,I’m stuck on knowing which way to go, currently have a company car but been given a car allowance to find my own but I’m stuck with credit due to covid , can I lease a company car through the company but then put them back so it has minimum impact on tax 

DoaM

Only your company can answer that.

What does this actually mean?

kerrydrck said:

I’m stuck with credit due to covid

kerrydrck

Due to COVID my husband lost his job which making it harder to get cars cause he has no income until next month so I’ve got source a car for me and don’t know what to do for the best, hp, car allowance etc

DoaM

Why will your husband's income (or lack of) affect your creditworthiness? 

bigadaj

People will need more context to comment in a relevant way. So you have a company car, is this coming up to the end of it's lease? Do you have the choice of a new company car or just a car allowance? If car allowance then you will need to find a car that meets with the criteria your company set, may be nothing, may need to be a certain mileage, size, age etc Buying your own car is straightforward depending on your wants and needs, pay cash, borrow on a personal loan, hp or pcp and allow sums for maintenance, servicing, tax and insurance etc

Mercdriver

If it's affordability until your partner gets paid is an issue, many loans offer a deferred first payment - I know that Tesco bank does this.

CarMad95

I think like many people who have tried to help you, I think that the detail is given is too brief but you also seem a little confused about the options so here is a summary.

Company Cars:

These are cars owned/leased by your company but in your possession for your use. This is considered a benefit and so you are taxed on it. The way the tax is calculated is they take a value of between 0% and 37% (the Benefit in Kind/BIK rate) of the Recommended list price of the car. The percentage taken depends on fuel type and official CO2 emmissions. This value is then "added" onto your income and taxed accordingly (normally 20% or 40% depending on your income). This means that, depending on the company car you have, the amount you pay in tax every month could be more than it would cost it would be for the monthly payments to finanace/lease a car.

Car Allowance:

In essence this is just a pay rise. While they will pay you the money for the purposes of buying and maintaining a car, it is just an addition to your income and is taxed just like your regular income. As such, you can spend this money however you like but most people do put it towards a finance or lease agreement for a car plus a little aside for the routine maintenance costs. What type of finance or lease agreement to go for is a whole other barrel of fish depending on your needs, the car you're interested in, amount of miles you do and what you want to do at the end of the agreement. In addition to the car allowance your company pays you, you may be paid per mile you drive for business purposes (this is tax free so long as it's under 45p). Depending on the rate they pay and how many business miles you drive and your selected vehicles fuel consumption, this could be a huge contribution to the cost of you car. Although bear in mind, if you do a lot of business miles this will put a lot of depreciation (loss of value) on your car and if the fuel allowance from your company isn't alot it might not cover the fuel and the depreciation leaving you out of pocket.

What option is best for you depends on your circumstances, what you're looking for in a car, and how many business miles you do, plus what car allowance they are offering. I've listed a few examples below that might make a difference.

If your company offers electric cars as a company car, this might be a very good option as the BIK rate on this car (for this year) is 0%. This means it would cost you nothing in tax.

If you need a large family car but your company only offers small company cars taking the allowance would allow you to buy a car that fits your needs (even if you have to top it up yourself).

If you're happy with a cheaper, older, used car you could take the company car allowance, buy a cheap car and hopefully have left over allowance to pocket yourself. Plus you'd also have the tax savings from no longer having a company car.

In my personal experience, it can be a pretty close line between paying the tax on the company and just paying a finance agreement (but you then have the maintenance and insurance costs on top) so if they are willing to pay you more if you buy the car yourself it should overall end up cheaper.

I know you're concerned about getting credit, but at the moment many companies are offering first 3 months payment free on new cars (although make sure you are getting a good APR and can afford the payments afterwards). It's also not too difficult to qualify for car finance.