Help Calculating Impact of Company Car Tax Vs Cash Allowance

invincible

Hello,

I originally posted this in the Benefits & Tax Credits section but was told I should have put it here. If any admin can delete the old post that would be great.

I'm considering taking out a company car instead of my personal allowance but struggling to calculate how much it really cost me and whether I am better off taking out a personal lease where would be no BIK tax. The former requires no deposit, however, and includes insurance/maintenance which is a huge advantage.

My basic monthly gross pay is £5,175/month (excluding pension/benefits/stock) and I currently get a £550/month cash allowance on top of that (which I pay tax/NI on as part of my pay). I'm looking at the Toyota RAV4 2.5 VVT-i Excel Hybrid Auto which will use up £421.93 of that allowance and leave me £128.07 that I will continue to receive in my bank. The indicative BIK of this car provided is £340.31 (based on 40% tax). This model has a P11D price of £34,725 and CO2 of 129 g/km.

My limited understanding is that my income tax/NI will be reduced (hard to work out by how much since it's not a straight 40% calculation) as my cash allowance drops from £550 to £128.07. However, I will have pay around £340.31 extra a month in BIK tax.

What I don't know and want to figure is what will it really cost me when I factor in the additional tax I paying due to the BIK AFTER reduction of my allowance tax/NI. I think it might still be cheaper to take out a personal lease even after the separate deposit, insurance, maintenance, etc but can't say for sure yet.

Thanks in advance and let me know if I've missed any required details!

[Deleted User]

Always a difficult question. Have you factored in the cost of repairs, insurance, tax, finance costs and, not least, the depreciation hit that will be borne by your employer as opposed to by you?

invincible

Not yet, but as soon as I figure out how to calculate the incremental tax cost I will!

Grumpy_chap

There are all sorts of reasons why the OP will not be a "bog standard" person and there are on-line calculators that can take these variances into account.
BUT, if the OP was "bog standard" then considering income tax only (NI will make a difference):
Current situation:

• basic = £5,175/month
• car allowance = £550/month
• total £5,725/month = £68,700/year
• £12.5k no tax
• £37.5k @20% = £7.5k tax
• balance (68.7-37.5-12.5) £18.7k @ 40% = 7.48k tax
• total tax = £14.98k
• take home (68.7-14.98) £53.72k

Proposed situation (assuming no fuel card):

• basic = £5,175/month
• car allowance = £130/month
• total £5,305/month = £63,660 / year
• petrol hybrid car £34,725k 129 CO2, so BIK £9.7k/year = £800/month
• total £6,105/month = £73,260/year
• £12.5k no tax
• £37.5k @20% = £7.5k tax
• balance (73.26-37.5-12.5) £23.26k @ 40% = 9.3k tax
• total tax = £16.8k
• take home (63.7-16.8) £46.9k plus car

Difference in take home is £53.72k - £46.9k = £6.82k but you get a shiny car.

Hope that is correct - I may have made a mistake in the BIK sum, but sure someone will correct me.  Maybe I was just surprised because this is still an expensive car with high CO2.

invincible

WOW! That was EXACTLY what I needed thank you so much for laying it out in such an simple manner. Makes sense to me and yes this particular car has an unusually high BIK so clearly isn't a great option as a company car. I'll plug a few other options to this model and see how they compare to a personal lease (taking into account all the other costs included in the company car deal).

Thanks so much!

Grumpy_chap

It's not rocket science - surprised someone on £70k / annum could not fathom it.

invincible

Hahaha! This is the first time I've actually looked at how much tax I'm paying believe it not!  

unholyangel

Grumpy_chap said:

It's not rocket science - surprised someone on £70k / annum could not fathom it.

Apparently only 22% of the population have numeracy skills at GSCE C or above and over half only have primary aged numeracy skills (aka basic addition and subtraction - even percentages are outwith their comprehension). Which is quite worrying, when you consider that maths is the base foundation of pretty much everything. 

I've known people earning over 500k, people in charge of financial institutions, responsible for setting some sort of economic policy etc who couldn't fathom it. So 70k wouldn't surprise me in the slightest 

OP, remember to account for running costs too. 

Grumpy_chap

unholyangel said:

people earning over 500k, people in charge of financial institutions, responsible for setting some sort of economic policy etc who couldn't fathom it. 

Are they really not able to fathom it?  Or just too lazy to bother checking the figures when they can get a minion to do it for them?

unholyangel

Grumpy_chap said:

unholyangel said:

people earning over 500k, people in charge of financial institutions, responsible for setting some sort of economic policy etc who couldn't fathom it. 

Are they really not able to fathom it?  Or just too lazy to bother checking the figures when they can get a minion to do it for them?

According to them, not able to! Some of them I don't know well enough to confirm or dispute. The ones I do know well enough....I would never class them as stupid, far from it. But their strengths are definitely in other areas.