Company Car Allowance; Tax, etc worth it?

Grumpy_chap

I agree with Adrian.
Also, this is not correct:

Philgb4 said:

I should mention that £3500 is total figure 
Once subject to Tax that figure would leave me with £175 approximately. 

Your take home pay with the car allowance will increase by rather more than that when comparing the two options.

Ignore the current situation of having the Mondeo plus fuel card but not paying any BIK.  That is wrong and will almost certainly catch up with you at some time. 

Consider the actual options now.  I have made a number of assumptions and approximations, but you can re-work the figures to make it more accurate:

Option 1 - company car plus fuel card
Hyundai i30 tourer, SE, 1.6 diesel.  Car BIK £6k, tax payable at 40% rate £2.4k
Fuel card for same car, BIK £7k, tax payable at 40% rate £2.8k
Total BIK tax £5.2k

Option 2 - car allowance plus fuel card
Car allowance £3.5k, tax payable at 40% rate £1.2k £1.4k
Fuel card, assume 25k miles/annum at 45 mpg at £5/gallon.  555 gallons.  BIK £2.8 k, tax payable at 40% rate £1.2k
Total BIK tax £2.4k £2.6k
Assume 10k business miles, tax relief at 45 pence/mile, £4.5k relief, tax saving at 40% rate £1.8k SAVING

Difference moving from option 1 to option 2
Save company car and fuel card tax £5.2k (+)
Increase salary car allowance £3.5k (+)
Tax on car allowance plus fuel card £2.4k £2.6k (-) 
Tax relief on business mileage (claim through tax return) £1.8k (+)
Overall change = +£5.2k +£3.5k -£2.4k -£2.6k +£1.8k = £8k increase in nett per year = £650/month

Very easy to run a brilliant car on that.
Obviously, you need to re-run the assumed figures I put in about exact company car model, total mileage, business mileage, and whether it is all 40% tax band or some is 20%.

Hope that helps, and that you can do that calculation as it will apply to yourself before speaking with the boss.  Maybe, the £3.5k is sufficient and no need for a negotiation, which could be unwise in the current climate.
God luck with your aim to become one of the "select few with allowances" and the "secret deal" you are after...

EDITED to correct ERRORS  Does not change the basis of the comment

Philgb4

chrisw said:

It would appear you are seeing the car as a status symbol rather than as a tool for doing your job.

Does your work include visiting construction sites? If so, I would prefer to use a company vehicle where there's no/less concern over it getting dirty, tyres, maintenance, scuffs and scratches. Even a base spec i30 is fairly well equipped these days. You might feel better once it's replaced with a new one rather than someone else's cast off.

That is true. There is most certainly a risk in providing my own vehicle when visiting construction sites (punctures, scratches etc). 
I do feel having an older (2014) used Hyundai, where the previous driver has most certainly not looked after it is part of my dismay.
I think if I was given a relatively good condition newer model I probably wouldn't be as fussed and would stomach it.
Adrian makes a fair point I do not want to upset the business, which could lead to me being tarnished as a trouble maker.
I think based on the options (keep the company car) or use the allowance I must make a decision on this basis.

Grumpy_chap

I just thought I'd re-run the above calculation for basic rate tax as it gives a useful comparison:

Option 1 - company car plus fuel card
Hyundai i30 tourer, SE, 1.6 diesel.  Car BIK £6k, tax payable at 20% rate £1.2k
Fuel card for same car, BIK £7k, tax payable at 20% rate £1.4k
Total BIK tax £2.6k

Option 2 - car allowance plus fuel card
Car allowance £3.5k, tax payable at 20% rate £0.7k
Fuel card, assume 25k miles/annum at 45 mpg at £5/gallon.  555 gallons.  BIK £2.8 k, tax payable at 20% rate £0.6k
Total BIK tax £1.3k
Assume 10k business miles, tax relief at 45 pence/mile, £4.5k relief, tax saving at 20% rate £0.9k SAVING

Difference moving from option 1 to option 2
Save company car and fuel card tax £2.6k (+)
Increase salary car allowance £3.5k (+)
Tax on car allowance plus fuel card £1.3k (-)
Tax relief on business mileage (claim through tax return) £0.9k (+)
Overall change = +£2.6k +£3.5k -£1.3k +£0.9k = £5.7k increase in nett per year = £475/month

Still healthy enough to run a very decent and suitable car.

Grumpy_chap

Philgb4 said:

Adrian makes a fair point I do not want to upset the business, which could lead to me being tarnished as a trouble maker.
I think based on the options (keep the company car) or use the allowance I must make a decision on this basis.

With my calculations, and I am basic rate tax payer, I would take the money.
An even more convincing argument for higher rate tax payer, which the OP indicated is the case.

Petriix

You should rerun those numbers and include an EV with 0% BIK. They look a lot better.

basill

Option 2 - car allowance plus fuel card
Car allowance £3.5k, tax payable at 40% rate £1.2k £1.4k
Fuel card, assume 25k miles/annum at 45 mpg at £5/gallon.  555 gallons.  BIK £2.8 k, tax payable at 40% rate £1.2k
Total BIK tax £2.4k £2.6k
Assume 10k business miles, tax relief at 45 pence/mile, £4.5k relief, tax saving at 40% rate £1.8k SAVING

Difference moving from option 1 to option 2
Save company car and fuel card tax £5.2k (+)
Increase salary car allowance £3.5k (+)
Tax on car allowance plus fuel card £2.4k £2.6k (-) 
Tax relief on business mileage (claim through tax return) £1.8k (+)
Overall change = +£5.2k +£3.5k -£2.4k -£2.6k +£1.8k = £8k increase in nett per year = £650/month

Very easy to run a brilliant car on that.
Obviously, you need to re-run the assumed figures I put in about exact company car model, total mileage, business mileage, and whether it is all 40% tax band or some is 20%.

Hope that helps, and that you can do that calculation as it will apply to yourself before speaking with the boss.  Maybe, the £3.5k is sufficient and no need for a negotiation, which could be unwise in the current climate.
God luck with your aim to become one of the "select few with allowances" and the "secret deal" you are after...

EDITED to correct ERRORS  Does not change the basis of the comment

For an employee with a car allowance and a fuel card is tax relief payable on the whole 45p/25p as no expenses have been paid in cash, even though business fuel has been paid for?

Also to further sweeten the car allowance calculations, If the OP has the option of paying for his private mileage there should be no BIK on the fuel card.

Grumpy_chap

Petriix said:

You should rerun those numbers and include an EV with 0% BIK. They look a lot better.

You can run the EV company car options if you wish.  It makes the company car more attractive but the car allowance less so.

It is irrelevant for the OP, who has the option of a 6 yo wreck of a Hyundai (and still the same BIK liability as when the car was new as the reduction for older cars was killed off many years ago) OR the car allowance at £3.5k/annum.

basill said:

For an employee with a car allowance and a fuel card is tax relief payable on the whole 45p/25p as no expenses have been paid in cash, even though business fuel has been paid for?

Yes, for an employee with their own car and a fuel card, so long as the tax is paid on the fuel card, then the AMAP relief can also be claimed.

basill said:

Also to further sweeten the car allowance calculations, If the OP has the option of paying for his private mileage there should be no BIK on the fuel card.

No, that does not work like that when an employee has their own car.  The efficient way is as I have set out - pay tax on the fuel card and then claim the AMAP relief on business mileage.  Given that private mileage is fully reimbursed by the employer, but the employee only pays tax on that amount at 20% / 40% why would the employee want to reimburse the employer the full cost of private fuel (or at AMAP 12 pence/mile) rather than only pay the tax on private fuel?  

Were_Doomed

I guess my employer does things slightly differently. I have a company car (albeit in a year's time when the lease ends I'll move on to an allowance) and also a fuel card. The company pays for the fuel and then charges me for personal miles at 8p per mile. (Before I had the fuel card, thus I was paying for fuel, I would expense business miles at 11p per mile). Given that diesel price vs MPG currently means each mile "costs" between 11p and 12p per mile, I'm essentially making a "profit" of between 3p and 4p per mile each fill up.  

Grumpy_chap

Were_Doomed said:

I guess my employer does things slightly differently. I have a company car (albeit in a year's time when the lease ends I'll move on to an allowance) and also a fuel card. The company pays for the fuel and then charges me for personal miles at 8p per mile. (Before I had the fuel card, thus I was paying for fuel, I would expense business miles at 11p per mile). Given that diesel price vs MPG currently means each mile "costs" between 11p and 12p per mile, I'm essentially making a "profit" of between 3p and 4p per mile each fill up.  

Yes, doing it like that has two purposes:

1. Protects the employer against an individual doing a disproportionate personal mileage
2. Can allow the employee to avoid BIK on the fuel card, though when AMAP rate is not applied, there has to be a calculation to substantiate the costs so the employee is not seen to be making a profit.

When you go to the car allowance and have your own car, you should be able to claim tax relief for the difference for business mileage reimbursed via the fuel card and the balance of business mileage at 45 pence/mile and 25 pence/mile.  I am not exactly sure whether this works using AMAP rates, or balance of fuel card actual costs.  Still, you have a year to look into the detail on this.