Company car vs car allowance

loislane99 · 5 April 2018 at 3:24PM

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!

singhini · 6 April 2018 at 5:45PM

natbeuk wrote: »

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!

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 · 10 April 2018 at 11:06AM

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 · 10 April 2018 at 11:33AM

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?

singhini · 11 April 2018 at 12:15AM

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)

Company car vs car allowance

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