Difficult company car vs allowance decision...

jon0881

Hi,

Im new to the site and come with a difficult decision i have to make. Im not sure if it makes too much difference but i am currently overpaying my mortgage by 48%. We are currently on a 1% tracker (soon to be .74%) and are keen to plough extra £££ into the mortgage.

So, on to the dilemma;

I will soon enter a negotiation regarding my travel arrangements for work. I am currently running about 16-17K business miles per year and an additional say 10K a year private.

I have the opportunity to negotiate on the three options below;

1. Take on an existing lease car (lower grade and basic) which will cost £110 pcm tax (includes private miles). I think its about £60 or £80 without.
2. Take out a new lease car of my choice and pay about the same amount of tax. Private fuel allowance is again an option. Cars available are 3series BMW, Audi’s, VW’s, Volvo’s etc.
3. Take a car allowance worth £6500 per year and buy my own car. The car I would choose would be a vectra estate or something for about £7K



Note. Company pays 12 PPM for business miles if on allowance or opt out of private mileage allowance.

I have tried the ‘car vs allowance’ calculators but they make the assumption you get the same car with either option. In my case I would choose to spend the allowance on a car costing significantly less than the cars available on the lease.

Does anyone have any advice?

Best wishes

Jon

MonkeySaving?

For those kind of miles I'd be taking the 6.5k car allowance, although i'd only do that if it was salary taxed and didn't appear on your P11d as a benefit. The lease car idea sounds ok but bear in mind the lease normally runs to 10k miles a year so you will have to factor in mind the extra mileage payments.
Anyway, did i mention take the 6.5k allowance?

By the way, i was in a similar situation myself, what I did was take the car allowance (9k) then bought a car on HPI and handed it back after 2.5 years. With an HPI mileage payments aren't taken into account so you're safe on that front. When you say "Company pays 12 PPM for business miles if on allowance or opt out of private mileage allowance." what do you mean? Do you mean the company pays 12ppm if you take the allowance or nothing if you agree to the private allowance?

jon0881

I was swaying towards the car allowance. There is no charge for going over 10K miles on the lease, its a corperate deal. My tax is 22% BTW.

About the 12 ppm. Its only for business miles on the car allowance. (sorry i confused that)

MonkeySaving?

Ok, but the key question here is, is your car allowance taxed as part of your salary (call it a bonus if you will), or is it added to your P11d as a benefit?

jon0881

Ah, ok sorry, yes it is subject to tax and NI but does not increase pension contribution.

nej

Just to add a bit more. The company pays 12ppm for business mileage? This is quite low, but you can claim back the tax on the difference between what they pay and what the IR allows as a maxumum amount. This can be a nice bonus once per year I.e. if the max allowed tax-free is 30ppm, you can claim back 22% on the difference between 12ppm and 30ppm.

You mentioned personal allowance as well. If you take the company car do you have a fuel card that pays for private mileage? If so, that is very heavily taxed. If you can get your own car with a fuel card, then you simply pay your 22% on the cost of your private mileage, which is obviously very favourable. This is what I do, btw.

jon0881

If you use your own car with no allowance the company will pay 40ppm (to cover tyres maintenance etc). when you get an allowance, this goes down to 12ppm.

the company car will always come with a fuel card but as you say there are two options; 1, use the card for business and private (and stump up for the tax) or 2, use the card for business milage only (you still physically use the card for all fuel but you declaire your private milage and are charged accordingly)

The decision to have the car with or without the private fuel will depend on the breakeven between the extra tax or the cost of running about 10K's worth of private fuel.

With the allowance, I dont think there is any card, you just claim the 12ppm business millage on your expenses

cash99

MonkeySaving? wrote: »

Ok, but the key question here is, is your car allowance taxed as part of your salary (call it a bonus if you will), or is it added to your P11d as a benefit?

Not heard of a car allowance being included on a P11D before. A cash car allowance is simply more salary and is always required to be taxed through PAYE. If an employer wrongly puts this in a P11D instead the employee will be better off as they will not pay national insurance on the amount.

MORPH3US

jon0881 wrote: »

The decision to have the car with or without the private fuel will depend on the breakeven between the extra tax or the cost of running about 10K's worth of private fuel.

Can you possibly explain the detail for making the above decision please?

I am going to have to make the decision soon so would like to know what I would be better off doing.....

jon0881

MORPH3US wrote: »

Can you possibly explain the detail for making the above decision please?

I am going to have to make the decision soon so would like to know what I would be better off doing.....

OK, you can take a company car with a fuel card that covers business and private mileage. You will pay more tax for the privilege. You can also take the car with the fuel card for business miles but you pay for your own private miles.

The calculation is relatively simple, if you do a lot of private miles or it costs more than it costs you extra in tax then take the fuel card for business and private.

Clear as mud?

MonkeySaving?

cash99 wrote: »

A cash car allowance is simply more salary

Not always