Tax on car allowance vs BIK - rule change?

lucyandthomas

Hi all

We are trying to work out the maths of whether it would be better to buy a new car ourselves and take the car allowance, or get another company car and pay the BIK.

Just come across the attached link, which says that if your company gives you the choice of company car or car allowance (as is the case for us), and you choose to take the company car, you have to pay whichever is higher - BIK or the tax (40% in our case) + NI on the allowance. So, with an electric vehicle with a very low BIK, we’d have to pay 40% tax on an allowance we didn’t receive, and wouldn’t benefit from the low BIK of an electric vehicle.

is this info correct? Haven’t seen or heard of this before.

Many thanks for any help

https://www.leasefetcher.co.uk/guides/car-leasing-explained/company-car-vs-company-car-allowance

Jeremy535897

Not as bad as you think, as ULEVs are not caught by the change:
https://www.clm.co.uk/company-car-tax/
https://www.legislation.gov.uk/ukpga/2003/1/section/120A

lucyandthomas

So - just to be clear - having a Tesla model Y as a company car with low BIK is still likely to work out cheaper than taking a car allowance of £785 per month) and paying 40% tax?

This new(ish) rule isn’t very visible online. I was totally unaware that if you are given the option of taking the car allowance, you will potentially be taxed on this value, even if you don’t take the payment. You don’t know what you don’t know until it jumps up and bites you!

Thanks for your help

Jeremy535897

BIK on base Tesla 2% of £44,000 ie £880, at 40% tax = £352.
Car allowance £9,420 x 40% = £3,768, plus you have to buy the car, but then you have the benefit of ownership.
There will be differences in any business mileage claims, dependent on who (you or the employer) pays for fuel.

lucyandthomas

Great, thank you