Company car vs cash allowance decisions

Supadupa · 5 January 2018 at 9:16PM

Hi,

The time has come to renew my company car or not and I’m going around in circles trying to decide what is best so would appreciate some views of others on what you would do in this position. So-:

- I currently pay around £150 a month benefit in kind for a Mercedes (the tax has increased gradually each year.) I pay my own private miles and work pays for business miles (fuel card)
- I do approximately 5k business miles per annum and 7k personal so approx 12k in total.
- I’d be paying around £170 a month bik on a new car with this increasing with the tax over the next three years.
- instead of the company car, I can take an allowance instead which works out around £225 per month net. I will need a car for business use but there’s no restrictions on it although I do have three children so two seater sporty numbers will not be an option.....sadly. The company car has allowed me to have a brand new Mercedes in the driveway which has somewhat converted me into a badge snob.

I’m weighing up the following options-:

1. Take out a personal lease instead that costs well below £395 per month (saved bik and allowance combined). This would allow for a new car with a warranty but I would have to insure, tax and maintain it and have the added worry that I go over the mileage allowance or scratch it.

2. Buy a used car around £4000. I could buy this outright and the money from the allowance and bik saved would mean it was paid back to me in a year. This would also mean I have an asset. Again I’d need to pay tax, insurance and maintenance but no mileage worries. Instead I’d just worry that it has problems with it. I may also be tempted to buy an older BMW to satisfy my badge snobbery and this might not be a good use of funds.

3. Buy a nearly new car on PCP. This would mean I would have a warranty on it, use my allowance to pay the monthly payments and then the option to buy it at the end. Again I need to factor in tax, insurance and maintenance and be careful I don’t go over the mileage allowance or cause extra expense through scratches. I’d also be paying interest on the PCP deal which seems like money wasted.

4. Sod it all, save myself these headaches and order another company car. Pay more than I want to through bik but have peace of mind with no further insurance, tax and maintenance costs and drive as many miles as I please!

So wise people of the internet, what would you do and why?

kevc1985 · 6 January 2018 at 12:20AM

I am in a similar position, can opt out of company car scheme and after tax will have about £425 a month to run my own car.

After looking at the options I thought PCP was not for me, if the company car gets damaged the company pay for it, with PCP I might get a bill at the end along with other things (mileage etc)

I am thinking of either HP or staying in - a big benefit of staying in is the worry free motoring, no excess and no insurance premium rises, flat tyres etc all covered and a replacement car if it's off the road. Benefit of my own car is I get to choose a better make/model, change it whenever I want and there is talk of telematics/dash cams coming in all company cars (some already have them) I had one before and want to avoid that.

You will need the car for work so you would need something reliable, so an older car may leave you better off in the short term but if something goes wrong any extra money you earned will be paid out again.

So that said.....I am still in the same position, in or out, worry-free over comfort....

Supadupa · 7 January 2018 at 11:43AM

Thanks for replying, it’s good to hear that I’m not the only one with this type of dilemma. Your allowance sounds far more generous than mine and I imagine you’ll have quite a healthy budget (and increased choices) when you add your allowance and bik savings together. I’m not sure if that makes the decision any easier though!

I have booked three test drives to see if that helps me decide. One of the cars I can lease privately for the net value of my allowance and would have bik savings on top so that seems like a no brainer. For the other two I would be cheaper taking the company car option so we shall see.

I have decided I’d rather have peace of mind through a manufacturers warranty either way than risk buying a used car and the depreciation that goes with it. At least that’s today thoughts-that may change again by tomorrow!

kevc1985 · 7 January 2018 at 1:00PM

Sorry my BIK and allowance payment was added together for my monthly figure. After looking into my current mileage buying my own car would not be a good option.

If you are looking at a car a few years old, say a 15 plate which would be 3 years old this year and keep it for 4 years it would be about 7 years old by the time you gave it back, you would have been on to your second or third 'new company car' by then.

I've made up my mind - staying in. High mileage, insurance excess, insurance increases , brake pad changes and wear and tear are too much of a risk for me. Plus if something goes wrong with my personal car I need to get it fixed at the weekend, with the company car it's classed as works time and a relief car provided for however long it take.

Be interested to hear how you get on.

jimjames · 7 January 2018 at 1:14PM

£170 per month for a brand new fully funded car seems a bargain. I'd stick with that.

We don't have the choice as it's allowance only but fortunately no stipulation on age of car that can be run/bought on the car allowance

sillygoose · 7 January 2018 at 10:04PM

op, you are aware of the changes to company car tax for anyone getting a new/replacement company car from April 2017 aren't you? (it doesn't affect your existing arrangement)

Basically for people like you who are offered either a company car *or* a cash car allowance things have changed, in effect whichever choice you take you will be taxed on whichever gives HMRC the most tax, despite which you choose!

This actually DISINCENTIVES people to pick cleaner company cars as if you do so to pay less BIK, they will tax you as if you took the cash instead! - its very bizarre!

There are two ways around this, if your company withdraws the cash option and insists you must only have a company car, the new rule doesn't apply. (or vice versa)

Or if you pick an ULEV (ultra low emission vehicle 75g/km or less CO2) for your company car then you are also exempt so I suppose there is the 'Green' policy bit.

This last option will be good for sales of Prius and Mitsubishi Outlander hybrids!

So before signing up for a company car, you need to work out the cost as usual (voluntary contribution, BIK etc) for it...

And then work out the tax you would pay on the alternative cash being offered at your applicable standard tax rate.

You will end up paying the higher of the two.

Where this new tax policy falls down is vehicle CO2 doesn't affect the tax you pay on a cash allowance its fixed, so you might as well spend it on an old 4.6 litre petrol Jeep churning out buckets of pollution, the income tax bill will be the same as if you buy a zero emission electric car. They really didn't think this one through.. :wall:

https://www.clm.co.uk/company-car-tax/

Markee · 19 March 2018 at 2:15PM

I've just been looking on the internet to see how this will affect me (I am a company car driver), and I've been trying to get my head around it.

So....

Are we saying that if you choose a company car with a low BIK, and therefore low company car tax liability, you could be taxed as if you were receiving a cash allowance if the tax liability for that is higher?

Conversely, if you opted to take a cash allowance so you could get yourself a nice sporty car to avoid the 110g/km CO2 restriction on company cars, you could actually fall foul and end up getting taxed on the sporty car as BIK as if it were a company car?

Talk about HMRC wanting their cake, eating it and having a cherry on top!

Markee · 19 March 2018 at 4:13PM

Just re-read the info in the link and this only affects people who have taken a company car, not the cash allowance, so the second scenario doesn't apply.

MidlandsGlory · 19 March 2018 at 6:33PM

Markee wrote: »

Just re-read the info in the link and this only affects people who have taken a company car, not the cash allowance, so the second scenario doesn't apply.

you are correct. As I pointed out last time in this discussion, if you have a choice of car or cash.

The CO2 tables is rising sharply year on year even for ultra low vehicles. Its will be worth looking at again 2020/21 onwards when yet another scheme comes in and the CO2 tables for cleaner cars drop down low again.. idiot up/down policies!!!

Personally for the next term if I had the choice I would take the cash, get a super cheap loan or a couple of interest free balance transfer cards and buy a decent 1 year old car that someone else has taken the biggest depreciation hit on with plenty of warranty left, perhaps see if the brand are doing approved used pre-paid fixed service deals and run it myself.

Keep it two years and then reevaluate the situation with coming back into a company car with an ultra low vehicle now the tax rates will have dropped again.

Nobbie1967 · 19 March 2018 at 7:39PM

In your position, I'd probably take out a personal loan of £4K to add to the £4K you already have and buy a 1 series diesel BMW from 2012 on when the latest model came out. Looks smart, reliable, economical, £20 tax on some models.

With the recent scare over diesels, there should be some good deals out there. No worries over extra mileage, if you scratch it you can live with it if you want. If you want to reduce risk, buy a warranty to cover the major stuff going pop. Run it into the ground, then repeat. My partner bought one three years ago and it's been fine despite mostly doing short journeys and a relatively low mileage.

Roley32 · 16 May 2018 at 12:09PM

Hi,

I'm in a similar situation. I have a company car but there is now a co2 cap on it which is heavily reducing my options. Currently I am paying circa £400 per month in BIK on my company car as well!

So I'm thinking if I accept the car allowance of £500 (£300 after tax) and then add on the BIK saving, I would have £700 per month to lease a car...?

When you stop your company car, is the BIK added straight back onto your monthly salary? How often is it adjusted?

If you dont get charged BIK on a lease car, even though you have to pay for insurance it seems like a bit of a no brainer.

Company car vs cash allowance decisions

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free