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  • FIRST POST
    • loislane99
    • By loislane99 5th Apr 18, 3:24 PM
    • 18Posts
    • 3Thanks
    loislane99
    Company car vs car allowance
    • #1
    • 5th Apr 18, 3:24 PM
    Company car vs car allowance 5th Apr 18 at 3:24 PM
    Hi

    I know this gets asked all the time, but I just can't get my thoughts straight on which is the better option for me so am hoping someone who understands tax better than me (which is basically everyone out there) can help!

    I earn approx 41k. I can get a car allowance of 415pcm or take a company car value 25,310.00 (BIK percentage 23%, BIK liability 5,821.30, so around 97 per month tax). I *think* that my car allowance would work out as 319pcm net allowing for the small part of it that would be paid at 40% tax. I claim business miles through expenses and pay for my private fuel use with both options.

    What I'm not clear on, is if I take the car allowance and spend say 280 (total, including all car expenses) per month on a car will I be financially better off than taking the company car? I feel like I would but am not sure if I'm missing something.

    Thanks in advance!
Page 1
    • singhini
    • By singhini 6th Apr 18, 5:45 PM
    • 332 Posts
    • 199 Thanks
    singhini
    • #2
    • 6th Apr 18, 5:45 PM
    • #2
    • 6th Apr 18, 5:45 PM
    Hi

    I know this gets asked all the time, but I just can't get my thoughts straight on which is the better option for me so am hoping someone who understands tax better than me (which is basically everyone out there) can help!

    I earn approx 41k. I can get a car allowance of 415pcm or take a company car value 25,310.00 (BIK percentage 23%, BIK liability 5,821.30, so around 97 per month tax). I *think* that my car allowance would work out as 319pcm net allowing for the small part of it that would be paid at 40% tax. I claim business miles through expenses and pay for my private fuel use with both options.

    What I'm not clear on, is if I take the car allowance and spend say 280 (total, including all car expenses) per month on a car will I be financially better off than taking the company car? I feel like I would but am not sure if I'm missing something.

    Thanks in advance!
    Originally posted by natbeuk
    I might have got this wrong but I don't think you will be a 40% tax payer (41,000 + 4,980 [415 x 12] = 45,980 and you can earn 11,850 tax free leaving 34,130 which is less than the 34,500 you can earn within the 20% tax banding.


    Anyhow, to answer your question we could do with a bit more info. Is the car your getting for 280 per month some type of PCP lease because it will need to cover everything i.e. Monthly rental, Business insurance, road tax, annual service, disposables such as screenwash and engine oil, tyres and importantly any penalties for damage to the car and excess mileage when you return it.


    What amount of mileage are you likely to do (most advertised lease deals are based on 10,000 miles a month and you might find your doing more and might have to pay for excess mileage.


    How will fuel purchases be treated (will the company pay you per business mile and if so what are they offering you), or are you just expected to submit the fuel receipt via expenses and they pay you back what you paid for fuel.


    If you take the company car and based on your figures, yes it will cost you 97 a month but that amount does go up each tax year. Also what is the company policy on accidents i.e. do you pay towards the repair (one company I worked for had a policy of 0 for the first accident, but then 20% for an additional accident in the same year and if you had multiple accidents in the same year it went all the way up to 80% of the repair costs.


    Also are there restrictions on the age of the car you can have (some employers say that if you provide your own car then it cant be older than 4 years old yet other employers ive had didn't care how old the car was but wanted evidence that I had adequate breakdown cover).


    Lastly think about how long your likely to be at this company, if you leave within let say 4 years of leasing a car you could be stuck with it.


    Need abit more info please
    • loislane99
    • By loislane99 10th Apr 18, 11:06 AM
    • 18 Posts
    • 3 Thanks
    loislane99
    • #3
    • 10th Apr 18, 11:06 AM
    • #3
    • 10th Apr 18, 11:06 AM
    Ah, I didn't know that you take the tax free allowance into account, I thought that any earnings above 45k were at 40%... this shows how little I know!

    I haven't found a car yet for 280 a month, rather this was a theoretical example - I'd be looking for a PCP lease that would cover all those things you have listed. I'd be hoping to find a deal around 280-300 max so that it comes in under then net amount I'd receive from my car allowance.

    Mileage is reimbursed by my company at 11p per mile up to 1.4 engine and 14p for 1.4-2.0.

    Mileage varies for me, but I work from home a lot so it doesn't tend to be high. I've only done around 10,000 in the last year, but that may increase from time to time although not dramatically over any long period.

    My company has no requirement to pay for the cost of accidents.

    There is no restriction on the age of the car for a car allowance, but I would need to provide my own insurance.

    Your last point is a very good one - I do need to consider how long I will be in this job.

    Thanks so much for taking the time to reply and apologies for my delay in responding but i didn't receive the notification of a response.
    • loislane99
    • By loislane99 10th Apr 18, 11:33 AM
    • 18 Posts
    • 3 Thanks
    loislane99
    • #4
    • 10th Apr 18, 11:33 AM
    • #4
    • 10th Apr 18, 11:33 AM
    I guess the crux of my query is this - if I take the car allowance, will I be 97 (or whatever amount I pay in tax on the company car) better off plus or minus the difference between net amount received in car allowance and total amount spent on a lease car with insurance, maintenance, etc?
    • Pauli354
    • By Pauli354 10th Apr 18, 11:42 PM
    • 18 Posts
    • 1 Thanks
    Pauli354
    • #5
    • 10th Apr 18, 11:42 PM
    • #5
    • 10th Apr 18, 11:42 PM
    I'm in a similar position, and moving to the car allowance works for me.

    Basically, when you hand back the co car, your tax code immediately improves by the amount of your BIK. My BIK was 8k approx, so my tax code went from 315l up to 1150l. IE I was saving 40% of 8k right away in tax. Also, if you contribute any amount over the allowance on your co car (say for a sportier model, this is called your PUC or Personal usage contribution), then you save that amount also.
    You then get the car allowance from your company paid into your salary, and in addition, you can now claim business fuel tax relief on your business miles as you are now using your personal vehicle for business purposes.

    Currently the rate applicable is .45ppm up to 10k business miles, and -25ppm after that. You take away the amount you already get from your employer, in your case .11ppm, and claim tax relief on the rest.

    If you were doing 10,000 business miles per year, this is .45ppm - .11ppm x 10000 = 3,400. You claim the tax back on that amount at either 20% or 40% (ie 680 or 1360). Its worth looking at. In my case I am saving a significant amount even allowing for servicing and the other things mentioned.
    • singhini
    • By singhini 11th Apr 18, 12:15 AM
    • 332 Posts
    • 199 Thanks
    singhini
    • #6
    • 11th Apr 18, 12:15 AM
    • #6
    • 11th Apr 18, 12:15 AM
    Ive always taken the company car simply because its the easy option. You get a brand new car and you only pay 2 things: 1) Company car tax to HMRC and 2) Some money to your company for private miles. That's about it (Simple, easy). You could get lucky like I did once, I was young and driving around in a brand new BMW 3 series (I could never afford to lease a car like that let along insure it aged 24).


    However, I did once in my life take the car allowance and I bought my own car. This worked out better for me as this company didn't care how old the car was, so I bought a Vauxhall Insignia that was 6 years old from a Vauxhall dealership for 6,000 (I then got 25p per mile from my employer).


    This was the maths (for me)


    So I got 320 after tax as car allowance and I got roughly 375 for mileage from my employer (1,500 miles per month x 25p).

    It cost me roughly each month: 250 in petrol, 15 road tax, 50 insurance, 5 on MOT, 35 servicing, 35 Tyres, 5 car clean, screeenwash etc.... (monthly running cost equal to 395 + 6,000 for the car).
    At the end of 2 years I sold the car for 2,000 (hence car cost me the equivalent of 4,000 / 24 months = 170 per month
    Summary: cost me 565 to run the car (395 + 170) and I was getting 695 (320 + 375).
    So that's 130 profit per month for 2 years = 3,120 (also I saved about 120 a month because I didn't have a company car and thus no company car tax to pay to HMRC. And I was able to do a self assessment each year and claim the additional tax relief on the mileage (Not sure if you know but HMRC rates for mileage are 45p per mile on the first 10,000 business miles and 25p thereafter. Since my company paid me 25p on all mileage as a flat rate, I was able to claim the tax relief on the missing 20p per mile for the first 10,000 miles. NOTE: you don't get 20p you get the tax relief, so if you are a 20% tax payer that would be 4p per mile on the 10,000 miles = 400 back from HMRC).
    I feel its only worth opting out if you can get pretty much any car you want and there are no age restrictions to that car. If your going to lease a new car that is similar to what's already on your company car list, I would just stick with the company car.
    Edit: Ignore the 10,000 miles bit (Pauli354 beat me to it)
    Last edited by singhini; 11-04-2018 at 12:20 AM. Reason: someone else was quicker responding
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