Company car tax - maths check
Company car tax - maths check
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Ecosseven

Original Poster:

2,371 posts

247 months

Friday 5th January 2018
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Afternoon all,

I have recently been promoted at work and my new role includes the option of a company car or a cash allowance. I'm reasonably sure that I will take the car allowance but I would be grateful if someone could check my maths below. I am a higher rate tax payer.


Car Allowance Option

Annual allowance = £6500

Monthly payment to me after tax and NI = (6500/12) *0.58 = £314.


Company Car Option

Tax is paid on the car or the allowance whichever is greater, therefore the minimum I would pay is (6500/12) X 0.4 = £217.


Minimum monthly cost to me of taking the company car would therefore be £314 + £217 = £531.


If I choose to take the allowance instead there appears to be no restriction on age or type of car other than it is 'suitable' for work purposes (which I'm guessing means no Elises or Caterhams!). The company car list does include an Audi TT so I'm guessing 3 door coupe's are OK. To be honest the company car list does include some nice choices such as BMW 320d, 520d, Jaguar E-Pace, XF, XE, VW Arteon, Skoda Kodiaq and Octavia VRS, Audi A4 and A6, Mondeo Vignale, Mazda CX-5, BMW 4 series, Audi A5, etc.

I'll probably do 20k miles a year of which around 10k will be business miles for which I will be paid 14p / mile. I submit a tax return each year and I understand I can claim the tax back on the different between the HMRC mileage rates and what I get paid by my employer.

(45p - 14p) *40 = 12.4p

Add this to the 14p and I would get 26.4p / mile for the first 10,000 business miles.

I currently run a 2014 Seat Leon and a 2010 MX-5 both of which are owned outright so although they are depreciating my current monthly outgoings are relatively small when compared with buying or leasing a brand new car(s).

Hopefully my understanding is correct but any comments or advice greatly received.

Thanks in advance.



Edited by Ecosseven on Friday 5th January 17:15

rsbmw

3,466 posts

135 months

Friday 5th January 2018
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Looks spot on, take the cash and keep running the leon

SidJames

1,399 posts

263 months

Friday 5th January 2018
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No problem with cash option, ran mine like that for a few years. It doesn't really wash its face with a new ish car, or even a £15k loan when you factor in class 1 business use insurance.

So I got after tax about £350 a month on an annual alloawnce of £7200.

No sure about the second part of your calcs for a company car. You pay tax on the co2 emissions against the total capital value of the car. My 520d m sport estate has a BIK for 2018 of around £10k, so I pay higher rate tax on that.

Having gone back into the company scheme I now pay tax of around £350 a month on that £10400 bik.

No brainer for the cash allowance if you have a nice reliable car almost paid for.


Ecosseven

Original Poster:

2,371 posts

247 months

Saturday 6th January 2018
quotequote all
SidJames said:
No problem with cash option, ran mine like that for a few years. It doesn't really wash its face with a new ish car, or even a £15k loan when you factor in class 1 business use insurance.

So I got after tax about £350 a month on an annual alloawnce of £7200.

No sure about the second part of your calcs for a company car. You pay tax on the co2 emissions against the total capital value of the car. My 520d m sport estate has a BIK for 2018 of around £10k, so I pay higher rate tax on that.

Having gone back into the company scheme I now pay tax of around £350 a month on that £10400 bik.

No brainer for the cash allowance if you have a nice reliable car almost paid for.
I think that the Government changed the rules in 2017 and if you get the option of a cash allowance instead of a company car then, as a minimum, you will be taxed on the car allowance (at either 20% or 40% depending on your tax bracket) or the benefit in kind for the car, whichever is greater. There is now no real incentive in choosing a low emissions car (excluding a hybrid) as I would still pay a minimum of £217 / month in tax based on the latest rules and my cask allowance of £6500 per year.

I'm happy to be corrected but that's my understanding of the current rules.



SidJames

1,399 posts

263 months

Saturday 6th January 2018
quotequote all
holy moses! Really! not doubting you my friend but that sounds bonkers! tax your cash allowance and/or the BIK of the car you own? (Have I misunderstood that?)

I've just ordered a company E350 hybrid (from a 520d m sport), and i should be a fair bit better off until all the diesels have gone and every jumps in a hybrid.

bogie

17,081 posts

302 months

Saturday 6th January 2018
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I guess the government were losing too much tax revenue with people opting for high value, but low emission company cars ....

just like they would if everyone REALLY moved to electric cars en masse....the price of car electric would soon get taxed, as per petrol and diesel....

hepy

1,367 posts

170 months

Sunday 7th January 2018
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SidJames said:
holy moses! Really! not doubting you my friend but that sounds bonkers! tax your cash allowance and/or the BIK of the car you own? (Have I misunderstood that?)

I've just ordered a company E350 hybrid (from a 520d m sport), and i should be a fair bit better off until all the diesels have gone and every jumps in a hybrid.
Plus company car tax on hybrids almost doubles from April.

Was all set to order a 3 series hybrid until I realised this.

SidJames

1,399 posts

263 months

Sunday 7th January 2018
quotequote all
hepy said:
Plus company car tax on hybrids almost doubles from April.

Was all set to order a 3 series hybrid until I realised this.
wrong I'm afraid. where is your source?

It will go up by around 3% points a year for thew next 3 years, so even if diesel tax rates stayed still I'll have the merc for it's lease lifetime and still pay less tax.

Sheepshanks

41,091 posts

149 months

Sunday 7th January 2018
quotequote all
Ecosseven said:
I think that the Government changed the rules in 2017 and if you get the option of a cash allowance instead of a company car then, as a minimum, you will be taxed on the car allowance (at either 20% or 40% depending on your tax bracket) or the benefit in kind for the car, whichever is greater. There is now no real incentive in choosing a low emissions car (excluding a hybrid) as I would still pay a minimum of £217 / month in tax based on the latest rules and my cask allowance of £6500 per year.

I'm happy to be corrected but that's my understanding of the current rules.
I think the above is only true for some salary sacrifice arrangements, which have always been extremely dubious (tax wise).

Jag_NE

3,339 posts

130 months

Sunday 7th January 2018
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CC tax on diesels is absolutely ridiculous now. I do zero business miles but am doing 18k a year personal miles in a 2.0d XF. As of this coming tax year I am handing back my fuel card as it’s cheaper for me to buy at the pump out of my own pocket. If I drove with economy in mind I wouldn’t be surprised if the tipping point was as low as 15k per annum. It’s an absolute joke that you work hard to get a benefit from your employer but need to do massive personal mileage’s to actually extract any personal value from it. My car goes back in a year and I’m opting out, the party is over for me! The way the hybrids are cranking up over the next few years is not insignificant.

hepy

1,367 posts

170 months

Sunday 7th January 2018
quotequote all
SidJames said:
hepy said:
Plus company car tax on hybrids almost doubles from April.

Was all set to order a 3 series hybrid until I realised this.
wrong I'm afraid. where is your source?

It will go up by around 3% points a year for thew next 3 years, so even if diesel tax rates stayed still I'll have the merc for it's lease lifetime and still pay less tax.
Apologies. You are correct. Goes from 9% in this tax year to 16% in 19-20 so would still almost double over the life of the car. Given that most will take the car over 3 years.

A big jump if you are a 40% tax payer.

Sheepshanks

41,091 posts

149 months

Sunday 7th January 2018
quotequote all
Jag_NE said:
CC tax on diesels is absolutely ridiculous now. I do zero business miles but am doing 18k a year personal miles in a 2.0d XF. As of this coming tax year I am handing back my fuel card as it’s cheaper for me to buy at the pump out of my own pocket.
I guess that's exactly what the Government / HMRC wants. There's not much new here - we used to have fully expensed company cars and many complained they didn't use them much for personal use but still got whacked by tax. At the other extreme some people were doing insane private mileages.

TwigtheWonderkid

49,108 posts

180 months

Sunday 7th January 2018
quotequote all
Sheepshanks said:
Ecosseven said:
I think that the Government changed the rules in 2017 and if you get the option of a cash allowance instead of a company car then, as a minimum, you will be taxed on the car allowance (at either 20% or 40% depending on your tax bracket) or the benefit in kind for the car, whichever is greater. There is now no real incentive in choosing a low emissions car (excluding a hybrid) as I would still pay a minimum of £217 / month in tax based on the latest rules and my cask allowance of £6500 per year.

I'm happy to be corrected but that's my understanding of the current rules.
I think the above is only true for some salary sacrifice arrangements, which have always been extremely dubious (tax wise).
Indeed. The OP would not be stuck with the £217 minimum. He would pay BIK based on list price and co2. If that's £100, that's what he'll pay (added to the amount he's losing by not taking the car allowance)

The other thing to factor in is the company car is a fixed price. No new tyres, no unexpected breakdown costs, no insurance to pay, no insurance excess to pay if you have a claim etc etc. All the things that can cost you running your own car are taken away from you.

That's worth something, and is often overlooked.

Sheepshanks

41,091 posts

149 months

Sunday 7th January 2018
quotequote all
TwigtheWonderkid said:
... no insurance to pay, no insurance excess to pay if you have a claim etc etc.
Ours was £1000! I always vowed I'd never pay it and in 17yrs it never got tested - I did have the odd car park ding and scuff that were a bit too bad to leave and they always paid for those without query.

If you're doing the opt-out calcs purely on money I used to reckon the peace-of-mind benefit of having a company cars was a good £100/mth.

Jag_NE

3,339 posts

130 months

Sunday 7th January 2018
quotequote all
Sheepshanks said:
I guess that's exactly what the Government / HMRC wants. There's not much new here - we used to have fully expensed company cars and many complained they didn't use them much for personal use but still got whacked by tax. At the other extreme some people were doing insane private mileages.
i just struggle to reconcile that when doing an above average private mileage, i should get zero value from a hard earned benefit. if it were healthcare etc, you pay tax at 40% of the value. why is private fuel whacked so disproportionately?

Ecosseven

Original Poster:

2,371 posts

247 months

Sunday 28th January 2018
quotequote all
The article below explains the new tax rules if you have the option of a car allowance as an alternative to a company car.

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

Having reviewed the options and checked the maths again it was a no brainer for me to take the allowance. I'll probably be sensible and keep the Leon for a while as there appears to be no restriction on age or type of car stipulated by my employer.


oop north

1,711 posts

158 months

Sunday 28th January 2018
quotequote all
Jag_NE said:
why is private fuel whacked so disproportionately?
to stop people driving large mileages at no personal cost - its a (rather crude) emissions tax

Leggy

1,029 posts

252 months

Sunday 28th January 2018
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I look at this every time my co car comes up for replacement and each time I stick with it.
You cannot run a brand new car for the money from most allowances.
If you are allowing netting £314 per month that’s not gonna get you much. And one big bill and if you had made any profits they would be wiped out. Insurance and tyres alone. And if you do a lot of miles it will add more wear and tear and so deprecate your private car further.
My e350 tax is under £200 per month a bargain.

hepy

1,367 posts

170 months

Monday 29th January 2018
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Leggy said:
I look at this every time my co car comes up for replacement and each time I stick with it.
You cannot run a brand new car for the money from most allowances.
If you are allowing netting £314 per month that’s not gonna get you much. And one big bill and if you had made any profits they would be wiped out. Insurance and tyres alone. And if you do a lot of miles it will add more wear and tear and so deprecate your private car further.
My e350 tax is under £200 per month a bargain.
Depends on a variety of factors.

For some the company car is a perk, in that they do very little business mileage, and hence they can go for a 5-10k miles pa lease deal.

Plus company car tax is only going to go up.

Some company schemes are bobbins. We can only take hybrids or pure EV through ours, and given the rising tax on hybrids from April, they make much less sense. None of our offices have charging points.

100% agree with the peace of mind thing though.

bogie

17,081 posts

302 months

Monday 29th January 2018
quotequote all
Leggy said:
I look at this every time my co car comes up for replacement and each time I stick with it.
You cannot run a brand new car for the money from most allowances.
If you are allowing netting £314 per month that’s not gonna get you much. And one big bill and if you had made any profits they would be wiped out. Insurance and tyres alone. And if you do a lot of miles it will add more wear and tear and so deprecate your private car further.
My e350 tax is under £200 per month a bargain.
Thats for your circumstances - everyone is different smile

My cash alternative is £780 a month and a fuel card.A fuel card for a private car is just taxed as income on P11D; Say I use £10k of fuel, it costs me £4k in tax then offset business miles against that at .45p a mile to reduce the tax bill further. A fuel card is still a real "benefit" if you dont have it linked to the company car and taxed via C02 rate.

Im not bothered about driving new cars, so buy 3-4 year old cars at >60% discount (its depreciation that is the biggest running cost of a car, regardless of how a car is funded, you are paying for it somewhere) get a year manufacturer warranty and pay my own tyres/insurance.

Its whatever works out for you.....