Pence per mile or car allowance

cjp2308

Hi All,

Not sure if I’m posting this in the right place, but hoping someone has had to make a similar decision.

I have been offered a new job and am left to weigh up taking pence per  mile or car allowance. See below; any suggestions please? 

As discussed, the company car situation has been quite an emotive subject of the last few years due to the absurd levels of taxation. So, you have the option of either using your own vehicle at 45p per mile for the first 10,000 miles and 25p per mile for anything over, or we are prepared to give a £400 per month car allowance plus business fuel costs. The car allowance element will be added to you PAYE and We will cover all business mileage.

jefaz07

Remember they use HMRC rates to reimburse your fuel. I currently get 11p a mile and £3900 PA car allowance.
You will also get tax relief between the 11p and 45p for the first 10,000 miles and 25p after.

cjp2308

Thanks for commenting, I just don’t understand it.

Take the car allowance option I was under the impression they’d add £400 a month to my salary which would be through PAYE. I then thought they would directly pay maybe through a fuel card for any business miles. Have I got it wrong? 

I have my own car at the moment, but it’s not new by any means so trying to decide what would be best financially 

jefaz07

I get my £3900 paid over 12 months on my wages, this is also taxed.
When I use the car for work I submit mileage claims for the business miles I have driven through expenses. We use concur.
The company then pays me x amount of pence per mile (currently 11p on a 2L diesel) 
These rates are set by HMRC.

At the end of the year I submit a tax return to claim the relief on the miles I have driven (the difference between 11p and 45p) 
This alters my tax code for that year. Its currently something like 1789L

The price of the car doesn't matter if your work policy doesn't stipulate. A guy at work had a £250 car and used that, he still got the full car allowance.

Grumpy_chap

Take the allowance.

Claim the company mileage (petrol) at the lower rate - typically 10ppm to 12ppm.

Claim the tax back on the difference to 45ppm / 25ppm through your tax return.

cjp2308

Would it be a good move to check how they plan to cover my business miles? Will they give me a fuel card or reimburse me would be the first question I ask.

tasticz

They will reimburse you per mile if you take the car allowance. If you have option of taking company car then they may offer you fuel card which will be subject to BIK charges.

If you take car allowance as cash then:

you pay for your own fuel, record your mileage.

Example - say you did 100 miles for business

You make a claim for 100 miles at HMRC specified rate which let's assume is 11p per mile.

The company will pay you £11 for 100 miles

then you go to HMRC and say i only got paid 11p per mile instead of 45p and HMRC will give you a tax relief for the difference of 45p - 11p which is 34p.

If you're 20% tax payer you'll get 6.8p relief and if 40% you'll get 13.6.

Add these values to the 11p your employer paid you


so @ 20% tax you get 17.8p per mile + car allowance £400 per month
@ 40% you get 24.8p per mile + car allowance of £400 per month

Note the 400 per month is subject to tax

How many business miles do you do per year?

Bigphil1474

OP, it's not quite as simple as others have made out. Depends how they allocate car allowance. I work for a local council so we get a poor rate, but it is as follows:-

£963 car allowance for the year paid monthly
40.9p per mile for every mile driven at work.

The payments are received monthly tax free, but affect tax free allowance at the end of the year.  For me, if I drive 5,000 miles in a year, I get 40.9p per mile and 1/5000 of £963 per mile, which makes it about 60p per mile. As you are allowed 45p per mile by HMRC, i am ultimately taxed on the 15p per mile 'profit'. 

The effects of the lump sum payment are reduced if you do loads of miles. The tipping point is about the 20k miles a year mark. Below that you are better off with the lump sum, above that, you are better off with the mileage rate. 

If the car allowance is taxed at source, i can see how it would have less effect, but I'd be surprised if you can claim tax relief on the business fuel costs. 

You need a spreadsheet and work out which is best for you. In the end it is all pretty much subject to tax one way or another. For a simple comparison of what you would receive e.g. 

20,000 miles a year

   Mileage - 10,000*£0.45 = £,4500 + 10,000*£0.25 - £2,500   Total £7k

   Lump Sum - 20,000*11p = £2,200 + £4,800 car allowance = £7k

10,000 miles a year

Mileage 10,000*£0.45 - £4,500

Lump Sum 10,000*11p + £4,800 = £5,900

jimjames

cjp2308 said:

Would it be a good move to check how they plan to cover my business miles? Will they give me a fuel card or reimburse me would be the first question I ask.

Not sure where the fuel card idea comes from, they won't give you a card if you have your own car so you will need to pay for fuel and claim back mileage on all these options. Bear that in mind as you will be funding that fuel cost for a period of time until payment hits your account. You do need to check how much the rate is for business mileage. You may find it is less than the cost of fuel if your car is a gas guzzler.

caprikid1

"Not sure where the fuel card idea comes from, they won't give you a card if you have your own car"

Different organisations vary, there is no diffinitive answer, my partner has a fuel card with a private car , insurance paid etc.

The other questions are

1. Expected milegage
2. Car requirements for allowance ? IE Some have an age restriction, no 2 seaters etc which don't apply to private cars.
3. Tax Rate £400 after 50% tax is not a huge amount to run a newish car.

cjp2308

Hi All.

got an update on expected mileage and how the fuel will be paid. See below, does this make one of the options more attractive?