New Salary with car allowance

LadyEE123

Hello, 

I am starting a new job in February with a car allowance (I have always had company cars)

It seems to be a kind field out there with how much my pay will be at the end of each month. I am looking to get a car through PCP and treating myself to a nice car. 

However I am confused how the car allowance will be paid- will this be incorporated into my salary or received as a benefit. 

New salary details: 

£58,000 PA
Pension contribution 5% (company put in 9% 
Car Allowance: £7219 PA
Benefit- private medical insurance 

my current tax code is 284L this is based on a salary of £38,000 with a company car. 

I have tried to use the salary calculator however I am confused on the car allowance. Will this be lumped in with my salary monthly or will this added as a benefit in kind monthly. 

Any help would be amazing! 

DullGreyGuy

It'll just be paid as salary but, for example, the 9% contribution from the company to your pension wont factor it in. 

Grumpy_chap

LadyEE123 said:

Hello, 

I am starting a new job in February with a car allowance (I have always had company cars)

It seems to be a kind field out there with how much my pay will be at the end of each month. I am looking to get a car through PCP and treating myself to a nice car. 

However I am confused how the car allowance will be paid- will this be incorporated into my salary or received as a benefit. 

New salary details: 

£58,000 PA
Pension contribution 5% (company put in 9% 
Car Allowance: £7219 PA
Benefit- private medical insurance 

my current tax code is 284L this is based on a salary of £38,000 with a company car. 

I have tried to use the salary calculator however I am confused on the car allowance. Will this be lumped in with my salary monthly or will this added as a benefit in kind monthly. 

Any help would be amazing! 

Whether the car allowance is shown as a separate line on the payslip or lumped in makes no difference to the tax liability.  I suspect the employer will show it separately, especially as you have indicated the car allowance is non-pensionable.

Are the employee pension contributions by salary sacrifice?  Assuming that they are, the amount to use in an online salary calculator would be:

• £58k
• Deduct 5% pension contributions (£2.9k)
• Add car allowance £7.2k
• Add BIK associated with healthcare, say £1k

That would give you £63.3k to enter into the salary calculator.  You would then need to deduct the value of the BIK associated with healthcare from whatever answer the salary calculator outputs (as you don't actually get paid that part, only receive the benefit).

If you are impacted by HICBC, you may wish to investigate whether you can salary sacrifice more into pension to avoid that withdrawal.

On the basic numbers. the £7.2k car allowance will give £4.3k after tax.
How will fuel for business mileage be reimbursed?  If that is at rates below the 45 pence / 25 pence per mile limits, there may be further tax relief that can be claimed.

LadyEE123

Thank you so much. I have inputted this into the calculator and come out with the attached. Would you then suggest removing £1000 per year for the BIC for private health care? 

This is all new to me as you can imagine so trying to calculate how much car allowance I could use per month. 

LadyEE123

Calculator screen shot attached ☺️

Grumpy_chap

OK - so the £1k BIK for the healthcare was an assumed number.  You'd need to use what the number actually is.  It might be £1k, or £500, or £2k, or something else.

For simplicity, ignore the healthcare totally if the only question is

LadyEE123 said:

 trying to calculate how much car allowance I could use per month. 

You need to run the following two scenarios:

• WITH CAR ALLOWANCE
• £58k
• Deduct 5% pension contributions (£2.9k)
• Add car allowance £7.2k
• That is £62.3k to enter as salary

• WITHOUT CAR ALLOWANCE
• £58k
• Deduct 5% pension contributions (£2.9k)
• That is £55.1k to enter as salary

The difference between the two is the amount for the car allowance as take home that you have available to fund the car acquisition, interest charges, insurance, maintenance, etc.

Exact figures might vary, especially dependant upon how the pension is treated (I have assumed salary sacrifice).  For the comparisons you are at, this type of variance will not make a massive change to the difference because you are not close to any tax bands.

If HICBC applies, that will make a difference.

400ixl

Does the new company do a salary sacrifice scheme for you to get a car. That would work out better for you on tax.

Grumpy_chap

Only guaranteed if the SS car is EV

penners324

Ensure the bik from your current company car is removed from your tax code by hmrc. This is unlikely to happen automatically 

LadyEE123

Thank you everyone! It’s difficult to work out how it will be paid as it seems every company is different! You seem to be taxed more if it’s a BIC rather than if it’s lumped into your salary. It’s either car allowance or company car but the car choice isn’t super 

Dazed_and_C0nfused

LadyEE123 said:

Thank you everyone! It’s difficult to work out how it will be paid as it seems every company is different! You seem to be taxed more if it’s a BIC rather than if it’s lumped into your salary. It’s either car allowance or company car but the car choice isn’t super 

No, you are "taxed" less if it's a BIK as you only pay income tax (and sometimes HICBC) on the value.

But extra pay (which is what the car allowance effectively is) had tax and National Insurance.  Although to compensate for this the car allowance isn't pensionable so you avoid pension contributions on that part of your pay.