Company Car Allowance; Tax, etc worth it?

Philgb4

Hi all,

I'm desperately seeking some advice regarding a company car allowance which I am in the process of negotiating.
To give some background, I'm employed in a construction business at Management level where I am expected to travel for my work. I've been with the company approximately 9 months and was previously given a new Mondeo which the company hired for me, fuel card included. 
No need to moan here.
Recently, the company took this off me and handed me a well used company Hyundai estate (sign written, with tracker, 'Light foot', etc etc) which belonged to a previous employee. I'm not overly happy with this as a vehicle for work, I can spend several hours in the vehicle at a time and believe i should have something comfortable and appropriate to my position (whilst not meaning to sound selfish).
I have voiced my unhappiness and they have since come out with a Company Car Allowance + Fuel Card.
Having not previously had something like this I have several questions;

1. What is a reasonable Car Allowance amount?
2. How does this work in regards to tax?
3. How do most people use this? Lease/PCP etc.
4. Is it worth it?

I feel I have been offered a rather small sum, in an attempt to just keep me quiet. Though I do not want to say what it is, if subject to full PAYE and NI tax, I don't think it would leave me much in the kitty.
Opinions welcome.

NottinghamKnight

Well if you are getting taxed on private mileage with the fuel card you are paying a fortune already, you need to be doing huge personal mileage to make that worthwhile. Were you being taxed on the Mondeo and fuel?
Provision of a car is down to your employment contract and terms and conditions, what is stated or was agreed. Car allowances vary hugely so you need to say what they have offered, whatever they give you is taxed but you can claim tax back on your business mileage through self assessment.  
Totally down to you how you finance a vehicle, lease or pcp gives some certainty but can be expensive on high mileages, how restrictive is the company requirement in terms of vehicle (size/ age/ type etc)
Whether it's worthwhile is down to you, high mileage and small allowance would push me to taking the company car, if you don't appreciate what they are offering then you can  negotiate or look elsewhere employment wise I guess.

Grumpy_chap

I had Company Car Allowance + Fuel Card a number of years back (up to 2010) and it was quite good from a tax efficiency point of view.
The value of the fuel card is obviously directly linked to inflation, which is good.

At the time, my car allowance was £400 monthly instead of a Mondeo.  I keep in touch with the company and people who still have the car allowance still get the same £400.  You would have thought that sum would have increased, but hey ho.  I think the reason is the company typically work the allowance out on equivalent lease rate (maybe plus a bit) and lease rates have stayed largely static, or even gone down if anything.  There is some logic in the way the rate has stayed the same.

In construction industry, £400 monthly is probably around the normal level.  My brother, however, works in the airline industry and gets a great deal more.  Comparisons to different industries are not really relevant.  What rate have you been offered as the "rather small sum"?

Income tax, works like this:

1. Car allowance subject to tax and NI
2. Fuel card subject to BIK at the rate of whatever cost of fuel you put in
3. Record your business mileage and claim back the AMAP relief in your tax return.  Not the full 45p / 25p is claimed, only the tax that would be paid on that rate (20% / 40%).
4. It is not uncommon for people to take the allowance and then PCP, but I did not do that and would not do that.  In my case, the rules were a car max 6 yo.  I took a company car until it was due to be returned (3 yo) then bought the company car and ran that for 3 year - then people used to take a new company car, rinse, repeat.  Getting a 3 yo car meant I made a profit overall.  To do that I put the £400 in a bank account every month and then any cost for the car was paid from that account.  By the time I left the company there was a profit left over about £4k.  I also had the small residual value of my car when I left, but not a great value as it was a 6 yo Mondeo with 200k miles on.  At least I did not have to do the "walk of shame" leaving the company on last day.
5. More detail required to assess "is it worth it?" for your case.  A large part depends whether you still want a brand new car every three years, or happy with older car.

Another consideration is that the company may still require you to have tracker etc. 
What rules will the company set for type of car and age / mileage limits?
I suspect, on joining, the Mondeo was a short-term hire and you now have one of the company's long-term lease vehicles.  Given the description of its condition, how long until that would be swapped for a shiny new one?

Philgb4

NottinghamKnight said:

Well if you are getting taxed on private mileage with the fuel card you are paying a fortune already, you need to be doing huge personal mileage to make that worthwhile. Were you being taxed on the Mondeo and fuel?
Provision of a car is down to your employment contract and terms and conditions, what is stated or was agreed. Car allowances vary hugely so you need to say what they have offered, whatever they give you is taxed but you can claim tax back on your business mileage through self assessment.  
Totally down to you how you finance a vehicle, lease or pcp gives some certainty but can be expensive on high mileages, how restrictive is the company requirement in terms of vehicle (size/ age/ type etc)
Whether it's worthwhile is down to you, high mileage and small allowance would push me to taking the company car, if you don't appreciate what they are offering then you can  negotiate or look elsewhere employment wise I guess.

Hi Nottingham,
Thanks for your reply. I was not getting taxed for the Mondeo and fuel card, i believe it was registered as a 'Pool Car' with HMRC.
A car or allowance is agreed within my offer of employment and as one of my terms of employment. To be frank, I have been offered £3500 per annum. I am not sure where that sits in the grand scheme of things. would this be subject to my normal PAYE & NI tax? in terms of claiming mileage back, what would I be eligible to claim? How do i go about proving that? etc.
The company has no restriction (as far as I am aware) in terms of size, age, type etc.
Appreciate your opinion and help.

DrEskimo

Grumpy_chap said:

1. It is not uncommon for people to take the allowance and then PCP, but I did not do that and would not do that.  In my case, the rules were a car max 6 yo.  I took a company car until it was due to be returned (3 yo) then bought the company car and ran that for 3 year - then people used to take a new company car, rinse, repeat.  Getting a 3 yo car meant I made a profit overall.  To do that I put the £400 in a bank account every month and then any cost for the car was paid from that account.  By the time I left the company there was a profit left over about £4k.  I also had the small residual value of my car when I left, but not a great value as it was a 6 yo Mondeo with 200k miles on.  At least I did not have to do the "walk of shame" leaving the company on last day.

This ^

Never understood the instant decision to spend the entire car allowance on the most expensive way to run a car...my partner has a company car allowance and just keeps the entire thing as though it's a salary increase. She still runs her 10yr old Mini that she's owned for the last 6yrs....I appreciate some companies have criteria, but that doesn't automatically mean you need to laden yourself with debt and high depreciation costs of a brand new car.

Grumpy_chap

Philgb4 said:

I was not getting taxed for the Mondeo and fuel card, i believe it was registered as a 'Pool Car' with HMRC.

If you had the same car for 9 months, this will likely catch up with you.  Whether there is tax due or not is down to the matter of fact of reality, not some declaration otherwise that can be corrected by the employer later.  There is nothing for the employer to gain in a false declaration to save the employee tax, but there is everything for the employer to lose.  It is unusual for companies (particularly construction) to have good cars as "pool cars".

Philgb4 said:

A car or allowance is agreed within my offer of employment and as one of my terms of employment. To be frank, I have been offered £3500 per annum. I am not sure where that sits in the grand scheme of things. would this be subject to my normal PAYE & NI tax? in terms of claiming mileage back, what would I be eligible to claim? 

Is the type of car and allowance option set out in the contract of employment?  For the construction industry £3.5k / year is not exceptionally low - many companies work on the basis of lease rate £300 / month (+VAT) and that gets perfectly good choice of vehicles.

The choice will come down to personal preference to some extent, and also how many miles you will do.  

I have set out above how the tax works.

EDIT:  I just looked online and a 4-year 20k mile/year business lease on a Mondeo starts at £310/month.  That is internet price without any negotiation or volume discount.  A construction company will be able to better that based on volume of vehicles - possibly why the company does not enhance the monthly allowance as the company could lose discounts if large numbers opt for allowance and volume of cars on lease drops.

Philgb4

Grumpy_chap said:

I had Company Car Allowance + Fuel Card a number of years back (up to 2010) and it was quite good from a tax efficiency point of view.
The value of the fuel card is obviously directly linked to inflation, which is good.

At the time, my car allowance was £400 monthly instead of a Mondeo.  I keep in touch with the company and people who still have the car allowance still get the same £400.  You would have thought that sum would have increased, but hey ho.  I think the reason is the company typically work the allowance out on equivalent lease rate (maybe plus a bit) and lease rates have stayed largely static, or even gone down if anything.  There is some logic in the way the rate has stayed the same.

In construction industry, £400 monthly is probably around the normal level.  My brother, however, works in the airline industry and gets a great deal more.  Comparisons to different industries are not really relevant.  What rate have you been offered as the "rather small sum"?

Income tax, works like this:

1. Car allowance subject to tax and NI
2. Fuel card subject to BIK at the rate of whatever cost of fuel you put in
3. Record your business mileage and claim back the AMAP relief in your tax return.  Not the full 45p / 25p is claimed, only the tax that would be paid on that rate (20% / 40%).
4. It is not uncommon for people to take the allowance and then PCP, but I did not do that and would not do that.  In my case, the rules were a car max 6 yo.  I took a company car until it was due to be returned (3 yo) then bought the company car and ran that for 3 year - then people used to take a new company car, rinse, repeat.  Getting a 3 yo car meant I made a profit overall.  To do that I put the £400 in a bank account every month and then any cost for the car was paid from that account.  By the time I left the company there was a profit left over about £4k.  I also had the small residual value of my car when I left, but not a great value as it was a 6 yo Mondeo with 200k miles on.  At least I did not have to do the "walk of shame" leaving the company on last day.
5. More detail required to assess "is it worth it?" for your case.  A large part depends whether you still want a brand new car every three years, or happy with older car.

Another consideration is that the company may still require you to have tracker etc. 
What rules will the company set for type of car and age / mileage limits?
I suspect, on joining, the Mondeo was a short-term hire and you now have one of the company's long-term lease vehicles.  Given the description of its condition, how long until that would be swapped for a shiny new one?

Some good advice overall.
 As stated, the allowance I have been offered works out around £290 a month. Which in comparison to what you just spoke of definitely seems sub par 👎.

I think the company is thinking of offering me a low sum, probably so it benefits then more than me.
I feel I may need to re enter negotiations.

Grumpy_chap

Philgb4 said:

the allowance I have been offered works out around £290 a month. Which in comparison to what you just spoke of definitely seems sub par 👎.

I think the company is thinking of offering me a low sum, probably so it benefits then more than me.
I feel I may need to re enter negotiations.

Quite likely "cost-neutral" to the employer.
Is the amount of allowance not stated in the contract of employment?

Philgb4

Grumpy_chap said

Is the type of car and allowance option set out in the contract of employment?  For the construction industry £3.5k / year is not exceptionally low - many companies work on the basis of lease rate £300 / month (+VAT) and that gets perfectly good choice of vehicles.

EDIT:  I just looked online and a 4-year 20k mile/year business lease on a Mondeo starts at £310/month.  That is internet price without any negotiation or volume discount.  A construction company will be able to better that based on volume of vehicles - possibly why the company does not enhance the monthly allowance as the company could lose discounts if large numbers opt for allowance and volume of cars on lease drops.

I was one of the only employees who was given the Mondeo, initially, I believed, due to my position in management. All other company cars (apart from a select few with allowances(lots of secret deals going on)) are Hyundai i30 estates (white, sign written, basic models).
I should mention that £3500 is total figure (i.e. I would still have to pay VAT, as I am employed)
Once subject to Tax that figure would leave me with £175 approximately. Trying to run a car including insurance, maintenance etc on that feels almost pointless.

NottinghamKnight

OP you will currently owe a large amount of tax if the car is for your private use, whatever the company call it.
the advice above about private fuel is out of date, if you are a higher rate taxpayer then depending on the vehicle you could be looking at paying £200 a month for the 'free' fuel so it;s often cheaper to pay for your own.

Grumpy_chap

Philgb4 said:

All other company cars (apart from a select few with allowances(lots of secret deals going on)) are Hyundai i30 estates (white, sign written, basic models).

If you take a company car, it will be a Hyundai i30 estate then.  Doubt there will be another choice.

Philgb4 said:

I should mention that £3500 is total figure (i.e. I would still have to pay VAT, as I am employed)

Understood the £3.5k is the total figure.  I can't get an online lease quote for the i30 as they seem to be between model launches.  However, Kia Ceed Diesel Sportwagen at £294/month company lease 3+35, 27.5k miles - it is almost certain the company has sufficient discount to get the total cost including service and insurance in that 'headline' figure.  Bang on the money for your £3.5k.

Philgb4 said:

Once subject to Tax that figure would leave me with £175 approximately. Trying to run a car including insurance, maintenance etc on that feels almost pointless.

I could.  Indeed, I can and do.  
Don't forget that you will have fuel paid for by the fuel card and will be able to make a profit back on business mileage if you pay the tax on the fuel card and then claim the tax relief against the 45p / 25p.

The biggest thing is what type of car you wish to have and what type of car the company will accept you having.

For the point of negotiation with the employer, first check the contract of employment.  If that is silent on the amount of car allowance, then make a decision as to what you will do if the allowance is as offered and does not move. 

You mention the "select few" with car allowance, and it sounds like you will likely join that "select few".  What evidence do you have of "secret deals"?  Maybe this is why the employer would prefer you to have a company car - to avoid the rumours and gossip that giving an allowance seems to create within the company culture?  It does sound as though, for this employer, the offer of a car allowance is already a concession to try to accommodate your wishes.

If you are decided on the allowance, by all means try to negotiate - you might get somewhere and can't lose much by asking.  You need to set something out that establishes your cost-base IMO.  At the end of one short conversation you need to be able to quickly say if you are accepting the allowance (at the rate currently offered, or whatever increase you secure), or taking the car. I know if someone working for me was dragging out this type of discussion, I would just get fed up with it and risk seeing the individual as a "trouble maker".

Ultimately, if you want a brand new car every few years, you need to take the company car.  No allowance will ever get an equivalent car brand new to what the company car would be.