Car Allowance - Included or separate to salary?

furmedge78

Hi all.  I tried to order a car this morning via my employers NHS Fleet Solutions contract. I currently receive a base salary with a car allowance on top, and I'm taxed on both under the 1257L code.  Under my order I advised my current income as base salary + car allowance, however Payroll have rejected the order as they advise I cannot include car allowance as part of my income as HMRC do not count it for the calculation for NMW purposes so cannot be used as part of my overall income amount.  I'm a little confused by this noting I'm taxed on both, and looking around the internet seems Payroll aren't quite right, but rather than go back with a Google result, just wondering if anyone has any knowledge I can go back with?  Thanks for reading.

Dazed_and_C0nfused

furmedge78 said:

Hi all.  I tried to order a car this morning via my employers NHS Fleet Solutions contract. I currently receive a base salary with a car allowance on top, and I'm taxed on both under the 1257L code.  Under my order I advised my current income as base salary + car allowance, however Payroll have rejected the order as they advise I cannot include car allowance as part of my income as HMRC do not count it for the calculation for NMW purposes so cannot be used as part of my overall income amount.  I'm a little confused by this noting I'm taxed on both, and looking around the internet seems Payroll aren't quite right, but rather than go back with a Google result, just wondering if anyone has any knowledge I can go back with?  Thanks for reading.

Maybe I'm missing something here but as you are getting a company car then won't you lose the car allowance 🤔

HMRC would certainly treat the car allowance as taxable income, it's basically just extra salary but (usually) without the benefit of accruing you any extra pension.

furmedge78

Dazed_and_C0nfused said:

Maybe I'm missing something here but as you are getting a company car then won't you lose the car allowance 🤔

HMRC would certainly treat the car allowance as taxable income, it's basically just extra salary but (usually) without the benefit of accruing you any extra pension.

Thanks for your reply.  Maybe I didn't make myself clear, sorry.  Payroll have told me that I'll still be in receipt of the car allowance however it's not included in my application e.g if I'm on a £55k base salary and receive £7k car allowance then I can only declare £55k in the application as my annual income rather than £62k.  The difference between declaring my salary only and including car allowance in my income is around £100 per month, and as I'm taxed on both I assumed you could apply with them added together as a total income amount.

furmedge78

Dazed_and_C0nfused said:

HMRC would certainly treat the car allowance as taxable income, it's basically just extra salary but (usually) without the benefit of accruing you any extra pension.

Apologies, I missed your second point.  That's my understanding but Payroll say otherwise.

Dazed_and_C0nfused

furmedge78 said:

Dazed_and_C0nfused said:

HMRC would certainly treat the car allowance as taxable income, it's basically just extra salary but (usually) without the benefit of accruing you any extra pension.

Apologies, I missed your second point.  That's my understanding but Payroll say otherwise.

I don't think they are saying that at all.

Presumably they are providing you with payslips each month which clearly show they are treating it as taxable income.

In your original post you made reference to NMW, which is a completely different issue.

What exactly is your question?

furmedge78

Thanks for taking the time to help.

My payslip has two lines in income each month but for the purposes of the application I need to add annual income.  Annual Salary i.e £55k & Car Allowance £7k.  Total Annual Income - £62k.

I applied for a lease car through NHS Fleet Solutions using our employee scheme with them.  I added £62k as annual income.  Payroll say I can't use that, and have to declare £55k as annual income.

The reason Payroll give is -You are not allowed to add the car allowance into your salary as HMRC do not count it for the calculation of National Minimum Wage purposes and so I reduced your salary amount.

This is the confusion I have, and just wondered if anyone had any experience of it before?

Dazed_and_C0nfused

According to Deloittes it doesn't count for NMW purposes.

Which is different to whether its taxable (it definitely is 😉).

https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://taxscape.deloitte.com/files/tax-journal-(1-december-2023)---what-s-allowed-for-car-allowances-(simon-down--alex-ali-marks).pdf&ved=2ahUKEwjy4orB9pCJAxXNh_0HHZPxCSYQFnoECBMQBg&usg=AOvVaw1O10guWjjB13DSS5cCRB0X

furmedge78

Dazed_and_C0nfused said:

According to Deloittes it doesn't count for NMW purposes.

Which is different to whether its taxable (it definitely is 😉).

Thanks for your reply, appreciate it. 👍

eskbanker

furmedge78 said:

for the purposes of the application I need to add annual income

Are there any guidance notes associated with the application process that would clarify what's considered to be relevant income?  Not sure where you can go if the fleet company and your payroll department disagree about it though, but if the latter are within the workflow after you've submitted the form, then they presumably have some better basis on which to challenge the use of the higher figure than apparently irrelevant references to NMW?

Grumpy_chap

furmedge78 said:

Hi all.  I tried to order a car this morning via my employers NHS Fleet Solutions contract. I currently receive a base salary with a car allowance on top, and I'm taxed on both under the 1257L code.  Under my order I advised my current income as base salary + car allowance, however Payroll have rejected the order as they advise I cannot include car allowance as part of my income as HMRC do not count it for the calculation for NMW purposes so cannot be used as part of my overall income amount.  I'm a little confused by this noting I'm taxed on both, and looking around the internet seems Payroll aren't quite right, but rather than go back with a Google result, just wondering if anyone has any knowledge I can go back with?  Thanks for reading.

I might have missed something.
You applied for the car stating your salary as £62k being the sum of £55k plus £7k car allowance.
You have been advised that the salary relevant to the lease car is £55k, so the car allowance is not relevant salary for that purpose.
Does this actually make a difference, or can you simply re-apply for the car stating the base salary rather than package salary?

Bookworm105

the NHS Fleet Solutions scheme is a salary sacrifice one, they make the rules 
if their rule uses your base salary only for the calculation then that is their rule, the fact your car allowance is subject to both income tax and NI is irrelevant

the components of NMW is a different matter, and in that context, yes, it is correct to exclude car allowance as that is not part of your hourly pay rate calculation
Calculating the minimum wage - Calculating the minimum wage - Guidance - GOV.UK (www.gov.uk)

The following payments, or elements of a worker’s pay, made by an employer do not count towards minimum wage pay:

• tips, gratuities, service charges and cover charges
• overtime and shift premia
• allowances
• payments by an employer to reimburse a worker’s expenses
• benefits in kind
• loans
• advances of wages
• pension payments
• lump sums on retirement
• redundancy payments
• rewards under staff suggestions schemes
• shares and share options

By the way, have you taken notice of the guidance on the NHS website in respect of the tax treatment once you have a car through NHS Solutions?
"If you contact HMRC to discuss your tax code, please confirm you have a ‘company car’ and that you do NOT make a monthly contribution towards it – this is because HMRC does not recognise salary sacrifice reductions as contribution towards the car, but not all of their officers understand this.  It has been known for HMRC officers to incorrectly change tax codes taking salary sacrifice reductions into account only for their error to be discovered at year end, thus resulting in a significant underpayment.  This can hopefully be avoided by confirming the above during any discussions with HMRC."