Company Car - What to do for the best?

[roboxm3]

Afternoon all,

I wonder if anyone could help explain to me the pro's and con's of having a company car Vs. taking a car allowance?

The last time I had a company car was about 10 years ago and it was a no-brainer as I'd just got my license back after a drink driving ban, so insurance was tricky to say the least.

The allowance would be £400 per month or choose from a list of cars that cost between £4-500 / month all in (48 month / 120,000 mile deal).

There are some decent cars that fall within that bracket but as I understand it, I will be taxed based on the value of the car...or is it the C02 output (and therefore the more "interesting" the car, the more it costs me)?

I understand that if I take the allowance and buy / lease a car then the maintenance costs will sit with me whereas with the company car I simply drive it and pay for my personal mileage.

Is there a simple way, for a given salary and annual mileage that I can work out what to do for the best, or at least where the cut-off point (value / C02 wise) is where I'm better doing it one way or the other.

Muchos Gracias

[trickywoo]

This might help.

http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

http://www.whatcar.com/company-car-tax

[roboxm3]

Thanks trickywoo, I'll have a play around with the WhatCar site later and compare a few of the cars from the list, see how they look cost-wise.

To be honest, that HMRC site is exactly the reason I came on here to ask for a more simple explaination.

I was hoping that those with more experience of such things would be able to give me the headline considerations, so I could at least refine my options.

[tenpenceshort]

Remember that the £400 allowance will be £300 or so after tax and NI if you're a 20% tax payer or about £240 at 40%. That won't get you much on PCP or lease for 30,000 miles a year.

If you take the allowance, what pence per mile are they offering?

If you take the company car, are you being given a fuel card or having your private fuel paid for?

[trickywoo]

roboxm3 said:

Thanks trickywoo, I'll have a play around with the WhatCar site later and compare a few of the cars from the list, see how they look cost-wise.

To be honest, that HMRC site is exactly the reason I came on here to ask for a more simple explaination.

I was hoping that those with more experience of such things would be able to give me the headline considerations, so I could at least refine my options.

There are quite a few other options like the Whatcar one to choose from. The CO will be the major influence on how much tax you pay.

[grayze]

If you do lots of miles then take the company car option 25-30K per year it about breaks even. on a like for like basis IMO

[roboxm3]

tenpenceshort said:

Remember that the £400 allowance will be £300 or so after tax and NI if you're a 20% tax payer or about £240 at 40%. That won't get you much on PCP or lease for 30,000 miles a year.

If you take the allowance, what pence per mile are they offering?

If you take the company car, are you being given a fuel card or having your private fuel paid for?

I'm in the 20% bracket but I will be doing circa 30,000 miles a year and from what I've seen, most "standard" lease deals are based on 10,000 miles or less, so I guessed that they wouldn't be so favourable for higher mileages.

If I take the company car I'll get a fuel card and pay for my personal mileage from the total fuel spend. If I took the allowance I'd get up to 17p per mile (based on diesel) and I assume I'd have to claim the difference between that and the 45p (up to 10,000) through HMRC?

[andy-xr]

I'd always go company car if the allowance comes with conditions on ending up in a lease arrangement, based on being stung in the past by being let go while still in contract.

Even having the BIK tax hanging over you is better than having a finance company asking where you think you're going to find the rest of the payments for the remainder of the term while you're working out who might give youa job in a hurry

[grayze]

The 400 per month will reduce as it is taxable. Remember though if you take the allowance you don't pay BiK tax which is often the same or more than the income tax reduction its complicated as the BiK tax is based on the CO2 emissions of the car so a low polluting (in the manufacturers/ govt opinion) car you pay less BiK tax.

ok , you take the company car you lose the allowance and you pay BiK tax but usually you get the peace of mind that if it breaks, they fix it and you don't pay insurance, VED, tyres, maintenance, servicing costs. Plus the hassle cost of having to manage it all.

[tenpenceshort]

From what you've described I'd take the company car, as you will be running a car on a shoestring and taking the fall for the inevitable mileage related depreciation.

£300 per month in your pocket and profit (if any) on 17ppm isn't going to properly cover the costs of a decent car, insurance, servicing and tyres. Also bear in mind, you'll have to wait until the following year to claim the difference in tax back.

If you did 30,000 miles, it would be 10,000 miles x 28p (£2800), then 20,000 x 8p (£1600), which gives you tax relief on £4400 @ 20% = £880 returned from the tax man. The effect of this is to add about £75 to your monthly budget, which is not a lot. I wouldn't want to be reliant on tax relief on mileage claims to balance the books

[roboxm3]

andy-xr said:

I'd always go company car if the allowance comes with conditions on ending up in a lease arrangement, based on being stung in the past by being let go while still in contract.

Even having the BIK tax hanging over you is better than having a finance company asking where you think you're going to find the rest of the payments for the remainder of the term while you're working out who might give youa job in a hurry

No requirement to have a leased car as far as I can work out, as long as it's under 5 years old and is properly insured, serviced etc.

[roboxm3]

tenpenceshort said:

From what you've described I'd take the company car, as you will be running a car on a shoestring and taking the fall for the inevitable mileage related depreciation.

£300 per month in your pocket and profit (if any) on 17ppm isn't going to properly cover the costs of a decent car, insurance, servicing and tyres. Also bear in mind, you'll have to wait until the following year to claim the difference in tax back.

If you did 30,000 miles, it would be 10,000 miles x 28p (£2800), then 20,000 x 8p (£1600), which gives you tax relief on £4400 @ 20% = £880 returned from the tax man. The effect of this is to add about £75 to your monthly budget, which is not a lot. I wouldn't want to be reliant on tax relief on mileage claims to balance the books

Thanks TPS, that wouldn't be 30k of business mileage either, over 20,000 of that would be personal. On that basis I assume the co. car is even more favourable!?

[Fastdruid]

roboxm3 said:

If I took the allowance I'd get up to 17p per mile (based on diesel) and I assume I'd have to claim the difference between that and the 45p (up to 10,000) through HMRC?

Indeed but it's worth considering a large petrol (>2l) instead of a diesel as it sounds like you're on the same deal as me where the company pays for car allowance users at "Company car rates". So I get 24p per mile which means that swanning along at 36mpg is the equivalent of a sub 2l diesel doing 93mpg....

Plus it then means you claim less from HMRC (and you only get tax relief anyway) which means you have to do more miles before you're over the 2.5k limit when you have to go the whole self-assessment route.

In all seriousness I couldn't make a diesel work under the rules my company has unless you find a large diesel that does 60+mpg (and I mean does, not claimed).

EDIT: Just saw

roboxm3 said:

Thanks TPS, that wouldn't be 30k of business mileage either, over 20,000 of that would be personal. On that basis I assume the co. car is even more favourable!?

Probably on the edge between diesel and petrol then for 20k personal + 10k business. Going to have to work out every car individually vs a company car.

Edited by Fastdruid on Thursday 21st August 17:33

[Fastdruid]

tenpenceshort said:

If you did 30,000 miles, it would be 10,000 miles x 28p (£2800), then 20,000 x 8p (£1600), which gives you tax relief on £4400 @ 20% = £880 returned from the tax man. The effect of this is to add about £75 to your monthly budget, which is not a lot. I wouldn't want to be reliant on tax relief on mileage claims to balance the books

Plus you have to wait until about the following Aug to get it and for claiming over 2500 you have to fill in a self-assessment rather than just P87 (and in my case they asked for my P11D as well).