Company car allowance vs Fleet Hire car - pros/cons

carrspaints

Hi. I've recently been promoted and one of the options I now have is choosing to receive a car allowance instead of a vehicle through our Fleet hire - Arval. I'm hoping for some guidance on which is the better option based on the data below:

The car allowance policy provides me with £570 per month, which is paid through payroll and does not form part of my pensionable salary, nor will it be taken into account for the purpose of calculating any bonus of other payments and benefits which I may receive. I would claim any business miles done at the Advisory Fuel Rate.

The vehicle I have now is a company car (fleet hire) Mercedes A250E (Feb 2021), which is due to be replaced in February 2025. Mileage is around 36k and it is in good condition. I have the option of buying this when the replacement date arrives. My guess is the Arval quote will come in at £17-18k. I am looking to retire in 2 or 3 years and was thinking I could buy this as the one and only careful driver and it could see me a few years into my retirement, rather than buying 2nd hand at retirement and taking a risk on condition of vehicle. The other option is to just get a fleet hire vehicle where all costs (tax, MOT, insurance etc.) is taken care of by my company/Arval, then buy something when I retire.

Based on the car allowance and claiming business miles (around 7,000 - 8,000 miles per year), can anyone help with the pros/cons of going with this option? Importantly, based on current annual costs to run a Merc A250E, would this see me potentially out of pocket, or better off? Thanks

BTW - 

1. I currently pay for all private milage via salary deduction, business miles are obviously covered by the company. 

2. Also, full electric is not an option for me, I have no way of plugging in anywhere near my residence.

3. Salary is around £70k, but I salary sacrifice 50%, take home is +/- 35k annually. Just in case this helps in understanding tax implications.

Bigphil1474

That's a generous car allowance, but then I'm public sector and we get sweet fanny adams. I think you need to sit down with a spreadsheet and work out the costs and benefits all round. My gut is telling me that buying your current car would make the most financial sense given you know how it has been looked after, and will save you the hassle after retirement. Presumably you have a company fuel card and you record your work mileage and pay off the difference? So what happens with the £570 a month if you are using your own car (commonly termed as grey fleet)? Do you still receive this? Is it worth just claiming the 45p a mile limit and forgoing the lump sum given that it will be taxed at the higher rate anyway?

For comparison, I use my own car for work, I get paid £83 a month lump sum and 40.9p per mile. That is all paid untaxed, but reduces my tax free allowance by about £1k on the P11D.

Grumpy_chap

My gut feel is to buy the current car and take that through with the car allowance until retirement and then keep the A250E for retirement.  That assumes that the lease company allow the purchase of the car at fair price - it is not always the case.

The car allowance will be subject to income tax plus NI at the appropriate marginal rates.  It sounds like you will be basic rate after the pension SS.  
You will claim company mileage at, say 13 pence per mile.  8k miles = £1k claimed expenses which is tax and NI free.
You can also claim back the income tax on the difference between the AFR and the AMAP since you are using your own car.  45 pence per mile - 13 pence per mile = 32 pence per mile allowable against income tax.  At basic rate (20%) that equates to 6 pence per mile so for 8k miles another £500 of nett gain available.

If you took a company car, that will be subject to income tax BIK, but not NI.  This would be attractive (based on current BIK rates) if you took an EV, but you say that an EV is not an option.  You mention no facility to plug in, but do you plug in the hybrid?  You are losing a lot of the benefit of the hybrid if you never plug in.
Obviously, the company car comes with "hassle free" criteria that running your own car won't.

You probably need to prepare a spreadsheet with various options and the actual BIK rates for the future company car versus the car allowance options.

Can you hold off making a decision until after the budget?  There are possibilities of changes then that may swing the decision one way or another.

Once you have all the hard facts set out and compared the options on a spreadsheet, you will have to weigh up against whatever your heart / gut is telling you.

carrspaints

Thanks everyone. To clear up some of your queries:

1. I have a company fuel card, and that would remain in use if I were to go with the car allowance option. Any private mileage costs are deducted from my monthly payslip. This is all recorded on the Allstar BMM system.

2. I went with the A250E purely because of the lower BIK in 2021. I rarely charge it because I don't have the ability to charge this from home.

3. I can make the decision on which option to go with after the Autumn budget, so I'll see what horrors beset us on the 30th October and factor that in.

I guess a spreadsheet is the way to go. Bigphil1474 mentioned the car allowance is generous - I have no idea how it compares to others. I know they do vary from company to company. Thanks

Grumpy_chap

carrspaints said:

1. I have a company fuel card, and that would remain in use if I were to go with the car allowance option. Any private mileage costs are deducted from my monthly payslip. This is all recorded on the Allstar BMM system.

If you go with the car allowance and retain the fuel card, you will pay Income Tax (but not NI) as BIK on the fuel card at the actual value of fuel added to the vehicle.
When you do your tax return, you can still claim back tax allowance on the difference between fuel paid for and permitted AMAP.
 - You paid £x on fuel and this is subject to income tax deducted via payroll (or tax code)
 - You deduct whatever you paid back for private mileage £y (unless this is already accounted within the payroll)
 - That means you received £z (£x - £y) for business mileage.
 - Compare that to the 45 pence per mile AMAP rate.
 - Claim tax allowance on the difference

The car allowance is amongst the more generous levels but not the very highest.  Many companies have frozen car allowances over many years.   

Bigphil1474

We get the same rate today as we have since 2011, and that's less than we got in previous (around £95 a month and 55p per mile back then). Local government. 

plantation_2

As long as you don't need the cash now you could always increase your salary sacrifice by the amount of the car allowance reducing tax impact now (overall impact obviously depends on your tax position when you take your pension)

carrspaints

Hi @plantation_2. I will need to make a decision within the next 2 weeks as to whether I go with a Fleet vehicle, or take the car allowance. I am strongly in favor of the car allowance. The question I have relates to the salary sacrifice you mentioned.

I already salary sacrifice 50% of my salary every month. I can't go any higher as our HR team said that doing so would reduce my take home to below the minimum allowed (minimum living wage or something). The car allowance policy provides me with £570 per month, which is paid through payroll and does not form part of my pensionable salary. nor will it be taken into account for the purpose of calculating any bonus of other payments and benefits which I may receive. With that in mind, can I still ask payroll to increase my salary sacrifice to include the £570? So my take home pay would remain the same, but I'm dumping the £570 allowance straight into my pension. 

butterflymum

@carsspaints What did you finally decide to do? Are you likely to reduce to part time closer to your planned retirement and if yes, did that influence your decision?