Company Cars vs Cash

[griffgrog]

We're about to replace our aging fleet of cars with new. A couple of people have started recently who had taken a cash option instead of cars with their previous employer. As they'd taken out finance on their cars we simply mirrored the benefit.

I want to offer the same cash alternative to our other company car drivers but don't know what to set the level at.

As company cars, we will be providing Golf / Passat / BMW 1 & 3 series cars. What would be a reasonable payment in lieu of this? The cost to the company of the new cars really surprised me. For what the company will be paying, an individual would never take the cash option, it wouldn't make financial sense.

Any advice appreciated.

Thanks

Matt

[Vee]

griffgrog said:

We're about to replace our aging fleet of cars with new. A couple of people have started recently who had taken a cash option instead of cars with their previous employer. As they'd taken out finance on their cars we simply mirrored the benefit.

I want to offer the same cash alternative to our other company car drivers but don't know what to set the level at.

As company cars, we will be providing Golf / Passat / BMW 1 & 3 series cars. What would be a reasonable payment in lieu of this? The cost to the company of the new cars really surprised me. For what the company will be paying, an individual would never take the cash option, it wouldn't make financial sense.

Any advice appreciated.

Thanks

Matt

I get £7,300 car allowance or can choose a car withing the band. In my case this is a 120d sport or equivilent.
My company, however, has now decided that car's will only be provided to those expected to do more than 15k business miles. Everyone else has to take the allowance and fund their own car. This is very beneficial for the company but doesn't help the poor buggers who have a long commute, and hence high private mileage.

[Eric Mc]

The whole Company Car scene is now very, very complicated. The key to the tax and NI charges arising is the CO2 emmissions of the various vehicles. Before any decisions can be made, the employer needs to know -

what company vehicles are intended to be supplied
what the various CO2 emmission levels are for each vehicle
the tax and Employer's NI arising
the tax and NI equivalent arising on any cash alternatives
whether the company plsns to pay all the fuel costs for its employees
whether the company plans to pay NONE of the duel costs for the empluyees
if the later, what mileage rates it allows its employees to claim for business mileage

It is quite a complicated procedure to do all the above, especially if different employees are treated in different ways.

[Deva Link]

I'm only really familiar with this from the employees point of view, but you do some comparisons at http://www.cashorcar.co.uk

For the employee, opting out only really makes sense if they do a fair number of business miles (but not so many that it kills the residual of the car) and not much private milage. Presumeably the opposite is true from the employers point of view. So it suits home based sales people, but generally doesn't suit office based people who have a long commute.

In my last 'big company' job we were leasing BMW320d / Audi A4 1.9TDI on 30K/yr, 3 yr full maint contracts for about £500/mth. The opt out allowance was set at £600/mth - the insurance saving made up some of the difference, but they were also keen to get us out of company cars. As well as the monthly allowance we also got 15p mile for business use. The employee can get a tax rebate at their normal rate up to 40p for the first 10K miles and 25p for mileage over that, so they end up getting 25p (<10K miles) and 19p (>10K miles) in total if they're 40% tax payers.


There are all sorts of issues from the employers point of view though. When my company first did it, they thought it absolved them of all responsibilty for cars / drivers, but it soon became clear that wasn't correct. You need to make sure the cars are suitable & properly maintained and insured. We started to get *loads* of issues with people not turning up for meetings because they had car trouble, and people became very reluctant to use their cars for certain journeys, or leave them parked overnight in dodgy hotels etc, where they always had in the past.

[Dunk76]

A fair amount these days is somewhere between 500 and 600 per month, dependant on mileage covered, use of vehicle, seniority, and tax banding. Don't forget that you pay Income Tax on car allowance - so a higher rate tax payer will only see £360 per month on a 600pm allowance.

£360pm will get you a fairly decent Passat/3er/1er/Golf. Or, allow people to take the option of running something older but more fun (like I do)

Mileage recompense should be equivalent to engine size (at my company, we're 18ppm for 2000cc+, 16ppm for 1600cc-2000cc, and 14ppm below 1600cc. Diesels are graded similarly, but lower banding - IIRC 2000cc+ only get 11ppm)

What a lot of people forget is that business use on Insurance often hammers the premium, either that or the mileage covered gets you. As an example, the Alpina is £1250pa fully comp with Class 1 Business Use at 40,000 miles per annum. If I was doing 12K with Class 1 Biz use it'd only be £650pa!

[griffgrog]

Great advice thanks. I don't know whether as a company we are getting the car's at a bigger discount than an individual, but including our fleet insurance and taking into account reclaiming 50% of the VAT, the cars are costing the company about £6K per annum. That works out at £500 per month. If we were to give that amount to employee's, I think that they would struggle to get an equivilent 3 series, insure and maintain it after Mr Darling had taken his cut.

Given the other downsides mentioned i.e. that in practice it doesnt relieve emplorers of the hastle of vehicular transport, I think as an employer, we should encourage employees to take the company provided car. I know that's what I'm going to do.

[Deva Link]

griffgrog said:

Great advice thanks. I don't know whether as a company we are getting the car's at a bigger discount than an individual, but including our fleet insurance and taking into account reclaiming 50% of the VAT, the cars are costing the company about £6K per annum. That works out at £500 per month. If we were to give that amount to employee's, I think that they would struggle to get an equivilent 3 series, insure and maintain it after Mr Darling had taken his cut.

Of course the employees also pay tax on the company car so there's a saving to them there if they opt out. If the employer is paying for private fuel (many still do for ease of admin) then the tax on that can frequently cost the employee more than the fuel they use.

Where the employee can make money is on the mileage allowance, but their balance of use between business and private is critical.

The other thing is that while some employees go out an buy an old 911, a lot take the opportunity to downgrade - we had people who absolutely *had* to have 5 Series BMWs as company cars but then bought 2nd hand Peugeot 307's HDi's when they opted out and were able to put £400/mth extra into their back pockets.

[tali1]

forget cash option ,a company car is surely the cheapest way to own a car

[stevieb]

Deva Link said:

The other thing is that while some employees go out an buy an old 911, a lot take the opportunity to downgrade - we had people who absolutely *had* to have 5 Series BMWs as company cars but then bought 2nd hand Peugeot 307's HDi's when they opted out and were able to put £400/mth extra into their back pockets.

So that is why my comapny car park is full of old knackered diesels even though they get over £500 month company car allowance

[Deva Link]

tali1 said:

forget cash option, a company car is surely the cheapest way to own a car

Do you mean "own" from the company's point of view, or the driver's? As an employee, you never "own" a company car.

There really are no black and white answers - it's amazing how everyone's circumstances are different. Some big companies run "ECO" (employee car ownership) schemes which offer pretty well all the benefits of a company car but without the tax. HMRC has been looking at these schemes for years, but hasn't yet done anything about them.

The company I work for now pays me the full 40p/25p tax-free rates for business miles (as well as a hefty monthly allowance), I work from home so have no commuting to pay for, and I do little private mileage, so I do very well out of it. I bought a nearly new Mercedes over 3 yrs - now it's all paid for and all I have to cover are the monthly running costs.

However, if you want a new car every couple of years, and you're office based with a long commute, you live in a high insurance area and you've got a drunken driving ban behind you etc etc, then you're probably better off in a company car.

[Dunk76]

tali1 said:

forget cash option ,a company car is surely the cheapest way to own a car

Not at all - the tax liability of a company car is such that, generally, you're only better off - against a similar cash allowance - when you have a Euro5/6 Diesel and do more than 50Kpa.

As an extreme example, my 200sx Touring was a company car - with the fuel card, I ended up with a tax code of K980 - paying 40% income tax on £9800 I never earnt + losing the £4500 @ 10% benefit. Each month I was paying £325 extra in income tax. My cash equivalent at the time was £475pm, which at 40% would have given me £285 cash. So in effect, the 200 was costing me £610 per month.

I did the silly thing, and costed it as a direct comparison - if I'd leased the thing, serviced and insured it myself, I would have been £75 per month better off. However, the 200's figures were slanted by the fact that it had 6000 mile service intervals, and chewed tyres like no tomorrow. The equivalent emissions BMW - the 330ci - would have incurred the same tax liability, but doing it myself would have saved me £160 per month!

[Deva Link]

Dunk76 said:

tali1 said:

forget cash option ,a company car is surely the cheapest way to own a car

Not at all - the tax liability of a company car is such that, generally, you're only better off - against a similar cash allowance - when you have a Euro5/6 Diesel and do more than 50Kpa.

There are *many* circumstances where a company car would be the cheapest option. What about the person who runs a £10K / 15% CO2 tax car with no private fuel and is only paying 22% income tax? The car would cost them the grand sum of £27.50 per month. Most people's insurance would be more than that!

Dunk76 said:

As an extreme example, my 200sx Touring was a company car - with the fuel card, I ended up with a tax code of K980 - paying 40% income tax on £9800 I never earnt + losing the £4500 @ 10% benefit.

I’m baffled by that comment – of course you still get the 10% allowance! The company car benefit is simply added to your salary, so instead of earning (say) £50000, you effectively earn £59800. All the allowances thresholds stay the same.

Dunk76 said:

I did the silly thing, and costed it as a direct comparison - if I'd leased the thing, serviced and insured it myself, I would have been £75 per month better off. However, the 200's figures were slanted by the fact that it had 6000 mile service intervals, and chewed tyres like no tomorrow.

That sounds like a car where you definitely would be better having it company funded! When I’m asked, I always suggest to people to reckon on £100/mth as the ‘peace of mind’ benefit of having a company car – a headlamp smashes, someone dents a door in car park, a brand new tyre get wrecked etc etc, then the company picks up the bill.

Dunk76 said:

The equivalent emissions BMW - the 330ci - would have incurred the same tax liability, but doing it myself would have saved me £160 per month!

High P11D value combined with high emissions are always going to be a good bet for opting out. As I mentioned earlier though, in practice we found most people bought *much* cheaper cars when they were spending their own money.

Edited by Deva Link on Tuesday 16th October 09:57

[rsv gone!]

Deva Link said:

Dunk76 said:

As an extreme example, my 200sx Touring was a company car - with the fuel card, I ended up with a tax code of K980 - paying 40% income tax on £9800 I never earnt + losing the £4500 @ 10% benefit.

I’m baffled by that comment – of course you still get the 10% allowance! The company car benefit is simply added to your salary, so instead of earning (say) £50000, you effectively earn £59800. All the allowances thresholds stay the same.

The tax for this benefit is recovered by reducing the tax code, to a negative value if need be. In effect, the thresholds all move down, relatively.

[Dunk76]

Agreed - but then when I chose the 200sx, it was still the old tax rules of over 18,000miles pa, and you pay tax based on it's engine size. Then the robbing Scots git changed the rules about 2 weeks before it arrived! So I had two and a half years on the new 'it's a perk really' tax rules.

Perk my arse - I did 158,000 miles in three years - it was a bloody necessity for my job!

As for cash allowance - personally I find people fall into three camps. The sensible trousers lot, who simply go and PCP/Lease something like a Passat/Golf/Mondeo etc. The 'take-the-money' brigade who smoke around in £3000 bangers and pocket the change. Then finally the petrolheads who go and get something a bit old and a bit daft and accept the loss against the reward of having something exciting to drive.

At the moment, I get 660pcm allowance, and 18ppm - this sort of pays for some of the costs the Alpina. The tyres and servicing put paid to any profit, and I almost break even on the fuel. I could drive a 325i instead, but it wouldn't be the same

The only check on PCP/Lease for me is my mileage - at 40K+ per annum, most leasing schemes go completely silly as the leasing firm knows that a 120,000 mile three year old anything will be completely worthless.

In my opinion, it makes more financial sense to cough up £14,000 or so on a low mile Alpina, completely ruin it by putting 80,000 miles on it, and accept a loss of £7000 over two years, than it does to pay £500+ per month to put the same miles on a new car.

The other positive of buying and running yourself like this is that you're not stuck with the thing for a fixed term - I can swap cars to my hearts content if I like.

[Deva Link]

rsv gone! said:

Deva Link said:

Dunk76 said:

As an extreme example, my 200sx Touring was a company car - with the fuel card, I ended up with a tax code of K980 - paying 40% income tax on £9800 I never earnt + losing the £4500 @ 10% benefit.

I’m baffled by that comment – of course you still get the 10% allowance! The company car benefit is simply added to your salary, so instead of earning (say) £50000, you effectively earn £59800. All the allowances thresholds stay the same.

The tax for this benefit is recovered by reducing the tax code, to a negative value if need be. In effect, the thresholds all move down, relatively.

Whichever way you look at it, it's not the double whammy that Dunk76 suggested. He's right about paying the extra tax (40% of £9800 is £326/mth) but you don't lose the 10% band as well, you still get that.

[rsv gone!]

Deva Link said:

rsv gone! said:

Deva Link said:

Dunk76 said:

As an extreme example, my 200sx Touring was a company car - with the fuel card, I ended up with a tax code of K980 - paying 40% income tax on £9800 I never earnt + losing the £4500 @ 10% benefit.

I’m baffled by that comment – of course you still get the 10% allowance! The company car benefit is simply added to your salary, so instead of earning (say) £50000, you effectively earn £59800. All the allowances thresholds stay the same.

The tax for this benefit is recovered by reducing the tax code, to a negative value if need be. In effect, the thresholds all move down, relatively.

Whichever way you look at it, it's not the double whammy that Dunk76 suggested. He's right about paying the extra tax (40% of £9800 is £326/mth) but you don't lose the 10% band as well, you still get that.

In simple terms though, in your wages, you just see yourself being taxed on more than you earn.

[smartie]

My wife gets £60, (yes - sixty) pounds a month car allowance and she MUST have a car for work.

She does work for the NHS though! On top of this, every new clinic/health centre they build generally has a dozen car parking spaces for 40 staff - to encourage other methods of travelling to work!

[Deva Link]

smartie said:

My wife gets £60, (yes - sixty) pounds a month car allowance and she MUST have a car for work.

She does work for the NHS though! On top of this, every new clinic/health centre they build generally has a dozen car parking spaces for 40 staff - to encourage other methods of travelling to work!

I suspect that's only part of the story - does she get a stonking mileage allowance too?

I know there are wierd car use schemes in the NHS - friend of Mrs DL is a Community Midwife and she get a capital free car. Basically all she has to pay for is private petrol.
My wife works for the Government too - she doesn't have to have a car, but there would be parts of her job that couldn't be done without it. She doesn't get any allowance and she had to pay to add business insurance to her policy. Many of the visits she does are nearer home than her office is, so she doesn't get mileage allowance for those trips. The only benefit is she doesn't have to drive into town and pay a fiver to park (no car park at her office at all, unlike at Hospitals & Clinics!) on those days.

[smartie]

Deva Link said:

smartie said:

My wife gets £60, (yes - sixty) pounds a month car allowance and she MUST have a car for work.

She does work for the NHS though! On top of this, every new clinic/health centre they build generally has a dozen car parking spaces for 40 staff - to encourage other methods of travelling to work!

I suspect that's only part of the story - does she get a stonking mileage allowance too?

I know there are wierd car use schemes in the NHS - friend of Mrs DL is a Community Midwife and she get a capital free car. Basically all she has to pay for is private petrol.
My wife works for the Government too - she doesn't have to have a car, but there would be parts of her job that couldn't be done without it. She doesn't get any allowance and she had to pay to add business insurance to her policy. Many of the visits she does are nearer home than her office is, so she doesn't get mileage allowance for those trips. The only benefit is she doesn't have to drive into town and pay a fiver to park (no car park at her office at all, unlike at Hospitals & Clinics!) on those days.

Thats the entire story - it's an abuse of staff by the NHS. The £60 is taxed too making it more like £10 a week in her hand!!

She gets 40ppm and if she loses her licence then she could lose her job!

NHS Podiatrist BTW.

[Deva Link]

smartie said:

Deva Link said:

smartie said:

My wife gets £60, (yes - sixty) pounds a month car allowance and she MUST have a car for work.

She does work for the NHS though! On top of this, every new clinic/health centre they build generally has a dozen car parking spaces for 40 staff - to encourage other methods of travelling to work!

I suspect that's only part of the story - does she get a stonking mileage allowance too?

I know there are wierd car use schemes in the NHS - friend of Mrs DL is a Community Midwife and she get a capital free car. Basically all she has to pay for is private petrol.
My wife works for the Government too - she doesn't have to have a car, but there would be parts of her job that couldn't be done without it. She doesn't get any allowance and she had to pay to add business insurance to her policy. Many of the visits she does are nearer home than her office is, so she doesn't get mileage allowance for those trips. The only benefit is she doesn't have to drive into town and pay a fiver to park (no car park at her office at all, unlike at Hospitals & Clinics!) on those days.

Thats the entire story - it's an abuse of staff by the NHS. The £60 is taxed too making it more like £10 a week in her hand!!

She gets 40ppm and if she loses her licence then she could lose her job!

NHS Podiatrist BTW.

Depending on the mileage she does (as long as it's not car killer mileage) then she's doing OK - most schemes pay an allowance and petrol money (like 12p/mile) mileage rate *or* a higher mileage rate. Your missus is getting the higher mileage rate (tax free, of course), and the tenner a week is probably intended to do nothing more than cover her extra insurance.

Edited by Deva Link on Tuesday 16th October 14:05