Company car tax/car allowance

jimbo2108

I am currently on 40k a year with a company car (Nissan Qashqai) Current tax code 496L i'm thinking of changing to car allowance at £370.00 a month. I am not too sure how it will work in regards to tax? How will this affect my tax code, also will I be better off or worse off.

Exodi

You'll need to see what the benefit in kind value is of the company car (you can see this on your P11D or on your online personal tax account) - and subequently what tax you'd pay based on your nominal tax rate.

Car allowance of £370 is essentially just adding £370 to your pay.

Your tax code is irrelevant to this calculation - you could have other benefits effecting this, you could have an overpayment or underpayment from the previous years, etc.

Dazed_and_C0nfused

If you give up the company car your tax code will be adjusted to reflect the fact you have only had the car for part of the tax year (it doesn't get removed altogether).

From 2023:24 onwards your tax code wouldn't include a company car deduction.

You would pay tax as normal on the £370, it's basically just extra pay although may not count for pension contribution/accrual purposes (check your company policy re this if it's a factor in your decision).

Grumpy_chap

Standard personal allowance is £12,570, code 1257L.
Your code is 496L, meaning allowance £4,960.
Deduction in allowance for BIK = £7,610.  Is that all for the car?  Does it include fuel card?

At 20%, tax on £7,610 = £1,522

Car allowance will be £370 x 12 = £4,440 and the tax will be £888.

So, give back the car and take the allowance will be a change in take home pay +£1,522 +£4,440 -£888 = £5,074 (£422 monthly).
Can you obtain, insure, tax, maintain a car for that?

Exodi

Grumpy_chap said:

Standard personal allowance is £12,570, code 1257L.
Your code is 496L, meaning allowance £4,960.
Deduction in allowance for BIK = £7,610.  Is that all for the car?  Does it include fuel card?

At 20%, tax on £7,610 = £1,522

Car allowance will be £370 x 12 = £4,440 and the income tax will be £888 + NI of £588 = £1476

So, give back the car and take the allowance will be a change in take home pay +£1,522 +£4,440 -£1476 = £4,486 (£374 monthly).
Can you obtain, insure, tax, maintain a car for that?

Sorry to be pedantic, but I believe that car allowance paid with salary usually has NI deducted - updated the figures above in bold. Obviously this assumes the OP earns an average salary.

From that £374, the OP must then pay for a suitable car (most employers would not be happy if you turned up in a R reg corsa), insurance that includes business travel, tax and maintenance - which is likely to be difficult.

I think most people that prefer car allowance, are those that already owned 'suitable' cars beforehand, so there is no 'lease' cost, just additional depreciation.

Grumpy_chap

@Exodi - yes, thankyou, I ignored NI but it is a factor

Bear777

I have had a company car for the past 15 years and previous to that I had a car allowance so can see the benefits of both. With that monthly figure you have to allow for the following:

- Financing the car 
- Service & repairs
- Maintenance
- Insurance and road tax
- Depreciation if you purchase a car

One way to ascertain if it is a better deal is to get a quote for a similar value car and work out the lifetime cost of owning such a car and then compare that to the additional income the other posters have identified. That will give you an idea on what’s the best route for you. 

Another option may be to consider keeping a company car but when you go to change it be very mindful of the P11D value of the car. Electric vehicles for company car business users are a no brainier given the reduced figures of CEV’s that are apportioned to them on P11D’s. My own company has allowed me to purchase a Tesla recently and whilst it was out of budget for my company car allowance and as such I have to contribute a bit towards it the savings I make on tax more than make up for the contribution I make.  Taking in fuel savings I’m quids in and have a substantially better car than I previously had. You may be able to get an electric car that still sits within your company car allowance and as such you are saving even more than I am. 

It’s all about reducing the P11D value on a company car and that alongside not having to worry about anything as the company looks after it and insured it means for me the company car route is still the way to go.  

Exodi

Bear777 said:

Another option may be to consider keeping a company car but when you go to change it be very mindful of the P11D value of the car. Electric vehicles for company car business users are a no brainier given the reduced figures of CEV’s that are apportioned to them on P11D’s. My own company has allowed me to purchase a Tesla recently and whilst it was out of budget for my company car allowance and as such I have to contribute a bit towards it the savings I make on tax more than make up for the contribution I make.  Taking in fuel savings I’m quids in and have a substantially better car than I previously had. You may be able to get an electric car that still sits within your company car allowance and as such you are saving even more than I am. 

It’s all about reducing the P11D value on a company car and that alongside not having to worry about anything as the company looks after it and insured it means for me the company car route is still the way to go.  

^ This x 100. 

Call it selfish, but as an employee your primary motivator should be finding the car with a low benefit value. As Bear777 says, this is made up of a percentage (based on emissions) of list price.

Like Bear777, I quickly realised that Hybrid/Electric cars had much lower tax implications. Unfortunately with the 'around £300' budget I had to work on, I don't think I could stretch to a Tesla... but in hindsight, it may have made sense for me also to contribute myself!

As an example, the 2L diesel Skoda I was expected to renew to, had a list price of £25,600 and due to emissions of 119 g/km, it had a BiK of 31%. This meant the benefit value to me was £7,936. At 40% tax, this is £3174.40 a year (or £264.53 a month) out of my pocket.

Instead I opted for a 1.4L self charging hybrid/petrol Toyota, which had a higher list price of £27,125 but due to emissions of 103 g/km, it had a BiK of 23%. This meant the benefit value to me was £6,239. At 40% tax this is £2,495.60 a year (or £207.97 a month) out my pocket.

A personal saving of nearly £50 a month for moving to a Hybrid is obviously fantastic, however, if you're able to move to a full electric vehicle (which I believe only have a ~2% BiK rate), you'd save hundreds a month.