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andygo

Original Poster:

4,518 posts

141 months

[news] 
Thursday 12th November 2009 quote quote all
My wife is a 40% tax payer. She currently has a company cat and looking at the tax bands she will be paying at least £108 per monthe on her new company car.

Would she be better off having a car allowance instead? The subject has been raised with her company, but nobody has really pushed it yet. If a car allowance is better off for her, what are the cost implications for the company?

I will google it as well, but I thought I'd ask the experts first!

Andy

Muzzer

3,814 posts

107 months

[news] 
Thursday 12th November 2009 quote quote all
There's loads of permutations involved in this but the basic rule I follow is thus:

If you're doing loads of miles, either personal or company, opt in.
If you do 10k miles a year, opt out.

Eric Mc

77,270 posts

151 months

[news] 
Thursday 12th November 2009 quote quote all
There has been a lot of discussion on this here over the past few weeks. Have a look here and on the Business Forum or the Finance Forum for similar threads.

andygo

Original Poster:

4,518 posts

141 months

[news] 
Thursday 12th November 2009 quote quote all
Yeah, I have just done some Googling and the issue in particular would seem to be the 40p per mile/10p per mile allowed by the Revenue.

On 25000 miles pa she could claim £7750. Assuming she does 45mpg (What she currently does in her Golf diesel) she would use 555 gals of fuel @ say £1.15 per litre = £6380 actual fuel cost.
Assuming thatthe car allowance 'buys' her car , that gives her £1500 pa to tax, insure etc. Not really worth the risk unless I have it wrong.
Additioanlly, a colleague of hers had adoor mirror knocked off whilst parked . She took it to the VW dealers to fix and it cost over £500. That would sort of take any profit/benefit out of the idea of a car allowance really.

I assume the main benefit of an allowance is that you own a car after 3 years paid for by the allowance.

Bullett

5,295 posts

70 months

[news] 
Thursday 12th November 2009 quote quote all
If you have a company car you can claim up to about 17ppm but you get taxed benefit in kind on the new value of the car.

If you opt out you get up to 40ppm but the company may not pay this you may have to claim back the difference between 17ppm and 40ppm from the taxman. You of course also get a monthly allowance £300+ depending on grade etc. This is of course taxed at 40%.

Like the other guys say under 10k a year, opt out over 20k a year opt in. In between, have a look for the various calculators online.
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becker-on-ph

146 posts

84 months

[news] 
Thursday 12th November 2009 quote quote all
Bullett said:
If you opt out you get up to 40ppm but the company may not pay this you may have to claim back the difference between 17ppm and 40ppm from the taxman.
I've not heard this about claiming the difference back from HMRC before?

hornetrider

49,122 posts

91 months

[news] 
Thursday 12th November 2009 quote quote all
andygo said:
My wife is a 40% tax payer. She currently has a company cat
Sorry, but hehe

Funk

15,287 posts

95 months

[news] 
Thursday 12th November 2009 quote quote all
hornetrider said:
andygo said:
My wife is a 40% tax payer. She currently has a company cat
Sorry, but hehe
I did too. hehe

andygo

Original Poster:

4,518 posts

141 months

[news] 
Thursday 12th November 2009 quote quote all
Funk said:
hornetrider said:
andygo said:
My wife is a 40% tax payer. She currently has a company cat
Sorry, but hehe
I did too. hehe
So did I thanks for pointing out my stupidity. smile

She has a company car as well....

andygo

Original Poster:

4,518 posts

141 months

[news] 
Thursday 12th November 2009 quote quote all
Well the company car she can have is a 2.o tdi sport golf again, 140bhp and with the 6 speed dsg box if rerquired. She loves her existing one and to be honest is happy with a new one. We were just wondering if a car allowance would be significantly better or not. I feel that a company car is better in the event of a bump, change of job and for general lack of hassle.

If its her own purchased car if there is an issue where the car is off the road for a period of time, it could get tricky.

Of course, someone may be able to offer their experiences which might show an alternative view.

Berw

1,715 posts

91 months

[news] 
Friday 13th November 2009 quote quote all
There is a booklet from the IR 'using your car for your employers buisness', get it read it, get a car over 2 liter and three years old with a full sevice history and no depreciation, the allowance and the tax claim for the milage beats a company car every time. I actually know some one who was on the committee that drew up the legistlation for the milage allowance, and they intended to cap the maximum milage that could be claimed tax free, fortunatly they managed to forget to do so and have never gone back to it. The milage allowance includeds for depreciation, get a3 year old car and you can effectivly pocket that portion.
The calculation is easy

1 salary plus comany car value, less personal allowance = taxable income

2 salary plus car and fuel allowance, lett PA less milage = taxable income

But remember to factor in you will own the car,
Then look at what car you can get for the money. When i last worked in the UK my car choice for a company car was bassed upon top of the range Mondeo, had the allowance and ran a 3 year old 735, bought with FSH from a solicitor.
Of coure if you go the lease route on a brand new car it is diffrent.

Kermit power

16,882 posts

99 months

[news] 
Friday 13th November 2009 quote quote all
andygo said:
I feel that a company car is better in the event of a bump, change of job and for general lack of hassle.
I'd agree with you on the bump or the lack of hassle, but how do you figure that on a change of job?

Let's take a worst case scenario and her employer goes bust on Monday. She turns up for work to find the leasing company waiting for her car keys. Surely it would be bad enough to be out of a job like that, without also then not having the car in which to go to interviews for new jobs?

Muzzer

3,814 posts

107 months

[news] 
Friday 13th November 2009 quote quote all
Kermit power said:
andygo said:
I feel that a company car is better in the event of a bump, change of job and for general lack of hassle.
I'd agree with you on the bump or the lack of hassle, but how do you figure that on a change of job?

Let's take a worst case scenario and her employer goes bust on Monday. She turns up for work to find the leasing company waiting for her car keys. Surely it would be bad enough to be out of a job like that, without also then not having the car in which to go to interviews for new jobs?
Let's look at another worst case scenario.

You opt out and buy a car for business use. 3 months later you get made redundant. You are now stuck with a car that you have to maintain payments on until at least halfway through the agreement when you can give it back.

If you have an opt-in car, you give it back at the end of your notice period and are free and clear.


-C-

456 posts

81 months

[news] 
Friday 13th November 2009 quote quote all
Similar position numbers wise to the OP, and had always run a company car, but was doing circa 25k miles a year so it was really the only option for me. I recall the tax was costing me somewhere around the £250pm mark but that included private fuel use too.

Over time, my need for the car had dwindled, moved a lot closer to work, very little work related travel etc so it seemed an expensive option.

When it was due for renewal I enquired about an allowance instead, which worked out at ~£450 a month net. Plus the original tax saving i'm ~£700 a month better off. I commute on bike now (kick I needed, no point when I had a car that I was being taxed to use and not using it!). We have a car and a van anyway so I can drive if needs be, and if I go out for work I can take a pool car.

I probably now to 5-7k miles a year, so i'm hugely better off, fitter and more healthy.

It's definatly worth checking the options. Mine wouldn't have been so black & white had I still been doing the mileage I was.

swerni

22,520 posts

96 months

[news] 
Sunday 15th November 2009 quote quote all
I've always gone for the allowance.

I couldn't stand the though of being stuck with the same car for 3 years.

That and the fact that, if it's your own car you don't have the embarrassment of having to ask for a lift to the station if they sack you wink

If she opts out does she also get a mileage allowance?

I was always under the impression that you can claim back for mileage in your tax code regardless of what the company pay per mile. So if the company pay 25p for the first 10k you can also claim 40p from the revenue for the first 10k and 25p for the rest.


OnTheOverrun

3,965 posts

63 months

[news] 
Sunday 15th November 2009 quote quote all
becker-on-ph said:
Bullett said:
If you opt out you get up to 40ppm but the company may not pay this you may have to claim back the difference between 17ppm and 40ppm from the taxman.
I've not heard this about claiming the difference back from HMRC before?
Nip to the HMRC site and download the claim form P87 which will explain it. smile

Kermit power

16,882 posts

99 months

[news] 
Monday 16th November 2009 quote quote all
Muzzer said:
Kermit power said:
andygo said:
I feel that a company car is better in the event of a bump, change of job and for general lack of hassle.
I'd agree with you on the bump or the lack of hassle, but how do you figure that on a change of job?

Let's take a worst case scenario and her employer goes bust on Monday. She turns up for work to find the leasing company waiting for her car keys. Surely it would be bad enough to be out of a job like that, without also then not having the car in which to go to interviews for new jobs?
Let's look at another worst case scenario.

You opt out and buy a car for business use. 3 months later you get made redundant. You are now stuck with a car that you have to maintain payments on until at least halfway through the agreement when you can give it back.

If you have an opt-in car, you give it back at the end of your notice period and are free and clear.
Free and clear without a car to get around. If you live outside London, do you really think you're going to be able to get to all the interviews and the like you need to get to without a car?

944gav

157 posts

106 months

[news] 
Monday 16th November 2009 quote quote all
andygo said:
Yeah, I have just done some Googling and the issue in particular would seem to be the 40p per mile/10p per mile allowed by the Revenue.

On 25000 miles pa she could claim £7750. Assuming she does 45mpg (What she currently does in her Golf diesel) she would use 555 gals of fuel @ say £1.15 per litre = £6380 actual fuel cost.
Assuming thatthe car allowance 'buys' her car , that gives her £1500 pa to tax, insure etc. Not really worth the risk unless I have it wrong.
Additioanlly, a colleague of hers had adoor mirror knocked off whilst parked . She took it to the VW dealers to fix and it cost over £500. That would sort of take any profit/benefit out of the idea of a car allowance really.

I assume the main benefit of an allowance is that you own a car after 3 years paid for by the allowance.
Your maths on the fuel costs for 25,000 is way out. It would be £2,904. You appear to have calculated a gallon of fuel to cost £11.50yikes

The main advantage of a car allowance is that as long as the scheme allows it, you can run a far more interesting car if you buy a couple of years old than may be available through the company car scheme.

Deva Link

26,934 posts

131 months

[news] 
Monday 16th November 2009 quote quote all
944gav said:
andygo said:
Yeah, I have just done some Googling and the issue in particular would seem to be the 40p per mile/10p per mile allowed by the Revenue.

On 25000 miles pa she could claim £7750. Assuming she does 45mpg (What she currently does in her Golf diesel) she would use 555 gals of fuel @ say £1.15 per litre = £6380 actual fuel cost.
Assuming thatthe car allowance 'buys' her car , that gives her £1500 pa to tax, insure etc. Not really worth the risk unless I have it wrong.
Additioanlly, a colleague of hers had adoor mirror knocked off whilst parked . She took it to the VW dealers to fix and it cost over £500. That would sort of take any profit/benefit out of the idea of a car allowance really.

I assume the main benefit of an allowance is that you own a car after 3 years paid for by the allowance.
Your maths on the fuel costs for 25,000 is way out. It would be £2,904. You appear to have calculated a gallon of fuel to cost £11.50yikes

The main advantage of a car allowance is that as long as the scheme allows it, you can run a far more interesting car if you buy a couple of years old than may be available through the company car scheme.
...and you (944gav) also calculated the mileage payment at the full rate.

Your gross total is right, despite quoting the wrong figures! It's 40p for the first 10K miles and 25p for mileage in excess of 10p.

  • However* companies typically pay something like 15p and leave you to claim the rest back from HMRC. But you only get the tax back, at the marginal rate. So a 40% tax payer gets an additional 10p for the first 10K and 4p for mileage over that.
So your actual mileage recovery would 25p up to 10K and 19p over 10K. For 25K miles that's £5350.
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