Company Car Quandry?

rca779

Guys I need some advise on whether or not to take up the offer of a company car. Apologies in advance for the long thread, but I wanted to make sure I included all the details.

My scenerio is as follows:

I have decided that if I am going to take a company car I am going to chose one from a lower band than I am entitled to so that I pay less tax and get a small monthly supplement in my pay.

The car I am considering is the new Ford Focus 1.6 TDCi in either Zetec or Titanium trim.

The car deal is for 4 years.
I currently only drive about 8,000 miles a year
Looking at the figures for tax, in the first year I will be paying £1271 in tax and thefeafter £918.
The monthly supplement I will receive for chosing a lower band car is worth about £22 a month or £264 a year AFTER tax & NI.
This would leave me with an annual tax bill of £1007 for the first year and £654 for the following years.
I run a 99/V Ford Mondeo 2.0 petrol which I could then sell for about £1,000.

The other nice thing about the Focus is the fuel economy. The book value is 62mpg, so I would expect to get in the region of 50mpg.

This seems a pretty cheap option for 4 years hassle free motoring.

However I also have the option of taking a cash equivalent which is £5000 a year. This works out at about £245 a month after tax & NI etc or £2940 a year.

My current annual spend on my Mondeo is about £700 and this covers Car Tax, Insurance, a Service and MOT, but it doesn’t allow for anything needing replacing or fixing.

Now my Mondeo is pretty poor on mpg (~28mpg), but the car is reliable and has recently passed it's MOT without any problems. I do think however that it will shortly need new brake disks and pads on the front which will cost about £250. However I am pretty certain that I would need to change the car within the next 4 years (the term of the company car deal) and I would expect to spend in the region of £5,000 to do this.

Finally the only other caveat is that if I chose to opt out of the company car scheme, there is no going back, I would only ever get the cash option every 4 years.

So what would you do?

Hintza

If a new(ish) car is imprtant and with your low miles I would be tempted to lease have a look here.

Better looking for the deal rather than the car, if you are not fussy about what you drve you should fine. Remember all prices exclude VAT and you need to add your deposit in (normally 3 months) to get at your true monthly figure.

rca779

A new(ish) car is not important to me.

I just like the idea of the trouble free motoring I would get with the company car.

It's just making the final decision - £3k cash in my pocket and my own car to fund or a company car that costs £650 a year in tax?

richiethekid

Sorry to jump on the back of your thread, but I'm in a similar position.

I currently receive an essential car user allowance of around £800 a year, plus 34p a mile for business mileage, which totals about 3000-4000 miles a year. I have the option of taking a lease car through my employer, which would mean paying around £167 a month (and not receiving the essential user allowance as it's effectively taken off the cost of leasing the car), plus only receiving around 9p per mile for business mileage. I'd also pay about £16 per month additional tax. But this would get me a brand new car and cover road tax, maintenance and insurance for 3 years.

So basically I've worked out that this isn't a bad idea as my current car is a tad on the thirsty side, and will need serious money spending on it within the next couple of years, plus I'd be able to sell it and pay off some debts.

What I'm not sure about though is the tax credits situation. Does anybody out there happen to know what effect a company/lease car has on tax credits? Can't seem so to find anything on the HMRC website or entitledto.

Any help much appreciated.

Cheers.

rca779

Hmmmmmm, Tax credits - good point I hadn't thought of them.

Does anyone know if Tax Credits would be affected by having a company car?

I might try phoning them later to see if they can answer this!

Hintza

Just to add your car tax is included in the monthly cost.

You need to sit down and do a spreadsheet on it and figure it out that way.

Of course keeping current car is the cheapest option but you need to be prepared for some bills the older it gets. I used to drive older cars but I'm getting to that age where less hassle and a bit more comfort is more important than the pure money aspect.

BillScarab

I have a company car that I pay a contribution towards for private use. That amount is taken off the taxable value of the car so does reduce the tax bill slightly. I think for tax credits the benefit in kind value of the car would be added to your salary before working out the tax credits but it would be worth calling the Inland Revenue to check.

Personally I think if you have the option of a company car go for it. For me I pay a total of £170 (including tax) a month for an Octavia Estate. I change my car every three years and although I have to pay for fuel there are no other costs to me. The peace of mind of not having to worry about unexpected repair costs is worth a hell of a lot in my opinion.

There are other benefits too like when I go abroad there are no extra costs for insurance or roadside cover.

Another factor to consider is mileage, althought eh OP currently only does 8000 miles a year what if this changes? Your circumstances could change and you could end up doing more in which case the company car will be even better.

richiethekid

A quick calculation on entitledto.com gives the same tax credits award if I add £5000 to my annual income (as it's a £15000 car and I'd be leasing it over 3 years) in which case it's worth going for.

AdrianHi

Complicated one this, I think it really is a bit of a 50:50 question.
I run my own company so have the option of leasing through my company a car or doing it privately on a mileage allowance. Even when you consider than I can reclaim 50% of the VAT on a lease car through the company an 18% BIK level car is still marginally more expensive leasing through the company, a 15% BIK level car is about even either way. If we assumed that the company / private balance worked out the same for you (i.e. 50:50 on a 15% BIK 1.6 TDI Focus) I'd say go private as you have more choices, like you could choose to keep a car older than 4 years old to reduce you car costs long term.
The next question would be what will it cost to be in the new car? and then can you afford it? and then is it worth it?
At only 8,000 miles a year the better economy of the newer car will not do much to offset the higher depreciation costs, the newer car will be cheaper to insure, service, no break down cover to pay for, you start on new tyres so all this helps to offset the higher deprecation. I've done this kind of calculation before on a variety of cars, I've just run the approx. numbers for old Mondeo vs. new Focus TDI and the new car is somewhere in the region of £180 a month extra over 36 months compared to the Modeo for 36 months (if it will last that long). If you did 18,000 miles a year the Focus is still £110 more a month. This is assuming £400 a year is enough to cover non-routine repairs on the Mondeo.

My choice would be to stick with private car use to have more choices, keep the Mondeo until it gets troublesome and one day buy something nearly new, not brand new, that's a bit more interesting than a 1.6 TDI Focus. But that's just me, what would you do?

Another thought, the problem here is the Focus is rubbish at retaining it's value, pick something like a VW Golf for £15,000 and suddenly the costs of the newer car, in the long run, comes down by around £80 a month. You need to be buying Focus nearly new, not new, or something that retains around 50% of it's value after 3 years. Remember that which ever way round you do this, the car costs come out of your income. If a lease deal on a Focus is cheaper than a Golf it is because Ford dump a shed load of cars onto the lease companies with big discounts undermining residuals for private buyers.

bargepole

One other factor to bear in mind (and I hope it doesn't happen to you, but it might): If you have a company car, and the employer decides to fire you, or make you redundant, you end up going home on the bus.

But with your own car, you can drive out of the car park waving two fingers at the scabby barstewards and go straight to your solicitors to prepare your unfair dismissal claim ...

AdrianHi

AdrianHi wrote: »

... If we assumed that the company / private balance worked out the same for you (i.e. 50:50 on a 15% BIK 1.6 TDI Focus) I'd say go private as you have more choices...

Crucial point I forgot to mention here, this assumes you are a higher rate 40% tax payer. If you pay 22% tax rate on 15% of the car value the balance swings back to getting the company car IF you want to be in the newer car now. Still cheaper to go private and use 6/7+ year old cars. On your 8,000 miles a year you have not worn a car out when it's 6/7 years old so not a bad way to go.
If I still have a car at 6/7 years old it's got 100-120,000 miles on the clock and it's in the garage every other month for one thing or another which is a bit of a pain.
My point of refuge is cars under warranty in the 6 to 36 month old range which retain at least 45% of their value at 36 months old. This kind of car actually gets more expensive in year 4 due to MOT, extended warranty etc. costs and not much different in depreciation compared to months 6 to 36 of age. As I said if I keep it until depreciation slows down around year 6/7 it's wearing out enough to be troublesome.
33% 3 year residual cars like the Mondeo and depreciation is always too high for this 6 to 36 month age car pattern to work.