How much car allowance?
Discussion
One of my employees has a company car which we provide and all he must pay is his private fuel. It is due for replacement but he has asked if I would consider a car allowance instead. The question is what would be the correct amount to offer him per month? His new car would be a VW Passat 140ps diesel Sport 4 Door or anything he want with 4 or more doors in the same price range.
Edited by stumpage on Monday 4th December 15:39
ashes said:
Off the top of my head I think your employee will only be able to claim mileage to do with business, at the rate of 40p per mile for 10,000 miles then 22.5 pence for any more.
Sadly our employer is still using the old rules and we go to 22.5 at 4000 miles!
Sadly our employer is still using the old rules and we go to 22.5 at 4000 miles!
Answering the wrong question!
Car allowances...typically in the range of £4-5k. What's probably appropriate is:-
- how much does a company car cost YOU as the employer?
- how much will he be able to get an equivalent car on lease-hire, PCP or similar?
- then decide on somewhere between the two...
Mileage claims...with a private car he CAN claim the full HMR&C rates (as above), but you'd want to keep paying him the co. car rate, obviously. Up to him to claim tax relief on the difference.
maybe you should look at the contract hire price of a similar car (Passat etc, maybe £250/£300 pcm) and then gross this up on his salary? That way, if he wants just a Passat then he can and he is no worse off, if he wants something either cheaper or more expensive, then thats his choice?
My wife gets £500 a month "car allowance" before tax. The car is then her own and when she claims business mileage she gets the full Inland Revenue allowable rate. I believe if she wasn't paid the full amount she would be able to offset the difference against tax.
So the £500 a month is compensating her for the benefit to her she no longer has as she has refused a Company car.
To be honest - I'm not sure how good a deal that is really. OK - your employee will no longer have the Company Car tax coming out of his PAYE (quite a saving depending) but running a car on £500 less 40% tax £300 net will be tight I'd imagine.
My Mrs changed over as
1) She often didn't manage to do 2500 business miles. In the old days that was BAD and led to a higher rate of tax.
2) She wanted to drive a TVR which you couldn't have as a Company Car.
I'd have a chat with your employee. Chances are he wants to take an allowance in order to have the car he wants to have. You should check with him that the vehicle he's going to buy will be good for the business mileage you ask of him - before he spends his money and causes ill feeling! If its the tax situation you should consider offering a highly tax efficient car - like a Prius. Get your employee to do the sums on a spreadsheet to work out whether he will be better off or not.
You may find he still wants a Company Car - just one that he'll pay less tax on.
So the £500 a month is compensating her for the benefit to her she no longer has as she has refused a Company car.
To be honest - I'm not sure how good a deal that is really. OK - your employee will no longer have the Company Car tax coming out of his PAYE (quite a saving depending) but running a car on £500 less 40% tax £300 net will be tight I'd imagine.
My Mrs changed over as
1) She often didn't manage to do 2500 business miles. In the old days that was BAD and led to a higher rate of tax.
2) She wanted to drive a TVR which you couldn't have as a Company Car.
I'd have a chat with your employee. Chances are he wants to take an allowance in order to have the car he wants to have. You should check with him that the vehicle he's going to buy will be good for the business mileage you ask of him - before he spends his money and causes ill feeling! If its the tax situation you should consider offering a highly tax efficient car - like a Prius. Get your employee to do the sums on a spreadsheet to work out whether he will be better off or not.
You may find he still wants a Company Car - just one that he'll pay less tax on.
This is what puzzles me as he is no petrol head and as I said he can have what he likes as long as it has 4 or more doors, so if he wants a cheaper car in a lower tax bracket I will get him one I don't have a problem. Like you I am struggling to see the benefit or why he would request it. Whatever he buys he will need to do 30K miles a year so any car he gets out of his allowance will plummet in value.
Edited by stumpage on Monday 4th December 16:23
Edited by stumpage on Monday 4th December 16:23
stumpage said:
This is what puzzles me as he is no petrol head and as I said he can have what he likes as long as it has 4 or more doors, so if he wants a cheaper car in a lower tax bracket I will get him one I don't have a problem. Like you I am struggling to see the benefit or why he would request it. Whatever he buys he will need to do 30K miles a year so any car he gets out of his allowance will plummet in value.
Edited by stumpage on Monday 4th December 16:23
Edited by stumpage on Monday 4th December 16:23
I suspect then he will get an older car which won't depreciate as much, try and pocket the difference.
If I were you I'd include some sort of clause to the effect that the car has to be younger than x years (or younger than x years at purchase) as he is representing the company...quite common where it's someone who's out at clients a lot. My old firm had this for their managers and it was a 4-year-old cut-off at purchase.
Alternatively he may just hate Passats (understandable).
havoc said:
Alternatively he may just hate Passats (understandable).
He can have what he likes as long as it has more then 4 doors and within budget so that will not be an issue. I must admit I didn't think of the "I'll buy an old barge and pocket the money" issue. As you say he will be representing the business so rules will need to be applied.
stumpage said:
I must admit I didn't think of the "I'll buy an old barge and pocket the money" issue. As you say he will be representing the business so rules will need to be applied.
Have you asked him what his reasoning is? It could be that he sees his tax bill and wants to get rid of part of it, but has no concept of the true cost of running a car for, say, 100K miles over 3 years.
We were pushed very firmly out of our company car scheme and many of the guys who were driving company 5 Series / A6 and got £750/mth instead, then went out and bought 2nd hand Astra's & 307's. The guy that put the scheme together was well p1ssed! We got 15p/mile for business use (plus there's a tax rebate of the *tax* element between 40p (up to 10K miles) and 25p beyond that. So that's 10p and 4p rebate for a 40% payer.
Run some comparisons through www.cashorcar.co.uk and see what comes out - as you recognise, if he buys a car and puts 100K on it in 3yrs then it isn't going to be worth much at the end of it. I also reckon (as an employee) that the peace of mind of having a company car (not having to worry about leaving it in some dodgy hotel car park etc) is probably worth £100/mth.
There are health and safety implications of employees using their own cars on business, too.
Edited by deva link on Monday 4th December 18:41
stumpage said:
he will need to do 30K miles a year so any car he gets out of his allowance will plummet in value.
He would be MAD to buy his own car. If he's pissed off with the tax he should get you to get him a Prius which, for little in the way of good reasoning, gets an enormous tax advantage.
I dont think he's that mad to buy his own car. I'm given £5k a year car allowance, but call it £3k after tax.
I drive an Alfa 156 that i paid £2.5k for 18months ago. Value now c.£1.6k.
I do about 20k miles a year and the total running costs at the moment are c.£1k per annum. So i pocket about £2k.
If i got a company car, yes i would have a shiny new car but i wouldnt save anything and it would cost me c.£10k over 2 years to get a similar model.
Not really much arguement there.
I drive an Alfa 156 that i paid £2.5k for 18months ago. Value now c.£1.6k.
I do about 20k miles a year and the total running costs at the moment are c.£1k per annum. So i pocket about £2k.
If i got a company car, yes i would have a shiny new car but i wouldnt save anything and it would cost me c.£10k over 2 years to get a similar model.
Not really much arguement there.
Agreed. He's probably expecting an allowance equal to the cost of you leasing a new Passat over 3 years/90k.
As others have said, he'll pay tax on the allowance, buy a cheaper car and pocket the difference.
Will he still keep the fuel card ? From what I know it's only worth him keeping it if he does more than 14k personal miles per year as he gets taxed on that amount.
If not, then you need to consider how much you give him as a petrol allowance - normally 12-15p per mile.
Also, will you continue to pay his insurance or will he take care of that ?
My personal situation is 20k business miles & very little private mileage.
I get £7,300pa gross and for that need to buy, insure, tax and maintain my own car. i also get 14.2p per mile for petrol.
I've just continued to use my old Golf V6 4motion. The 14.2p covers fuel costs and insurance, depreciation and maintenance come to less than the car allowance I get paid.
As others have said, he'll pay tax on the allowance, buy a cheaper car and pocket the difference.
Will he still keep the fuel card ? From what I know it's only worth him keeping it if he does more than 14k personal miles per year as he gets taxed on that amount.
If not, then you need to consider how much you give him as a petrol allowance - normally 12-15p per mile.
Also, will you continue to pay his insurance or will he take care of that ?
My personal situation is 20k business miles & very little private mileage.
I get £7,300pa gross and for that need to buy, insure, tax and maintain my own car. i also get 14.2p per mile for petrol.
I've just continued to use my old Golf V6 4motion. The 14.2p covers fuel costs and insurance, depreciation and maintenance come to less than the car allowance I get paid.
Edited by vee on Tuesday 5th December 09:36
As I keep saying he can have what he likes as long as it has more than 4 doors. So if he wants a Golf GTi, Focus ST, Scooby etc he can have one. Anyway after consideration, looking at all the H&S implications and reading this I really can't be bothered with all the agro and new policy that will need to be written. So he will have to have a company car. Which can’t be that bad, at least he can have a Prius if it’s that tax he wants to avoid.
Anyway thanks for the comments.
Anyway thanks for the comments.
mcflurry said:
Why not see what car he wants, and buy him one of them instead of a Passat (assuming it is a decent choice etc) ?
Because if he wants a decent performance petrol car he'll pay through the nose in tax!
I don't see a car-allowance as being THAT big a deal - will require a new policy ("At least 4 doors and 5 seats, no older than 5 years" - would eliminate almost anything unsuitable, worst he could get then is something like a Fiesta), but shouldn't be THAT much effort. And if you cost it right, might even save you a little bit of money (remember E'rs NIC on the allowance).
What you need to factor in when considering a car allowance is that as sell as the extra readies you get from the allowance (which is taxable), you also aren't paying the extortionate tax on the co car. In rough terms, as a 40% tax payer, most of the car allowance will be yours.
I opted out of our company car scheme years ago and have never looked back. Fortunately, they don't care what we run.
I opted out of our company car scheme years ago and have never looked back. Fortunately, they don't care what we run.
rsvmilly said:
What you need to factor in when considering a car allowance is that as sell as the extra readies you get from the allowance (which is taxable), you also aren't paying the extortionate tax on the co car. In rough terms, as a 40% tax payer, most of the car allowance will be yours.
What you actually need to do is to do the sums very carefully - it's amazingly different for many different circumstances. The tax is hardly extortinate - no way does it truly replect the value of the benefit of the car. Some people are running company cars that cost them £25/mth in tax - that's a no brainer for someone on a lowish salary.
Nobody appears to have even bothered about the most important thing....this person may see the car they drive as an emotive issue and they would love the opportunity to drive something else rather than be constrained by the corporate world of Passats.
It would not tempt me to join an organisation if that was offered.. Nothing wrong with them, but want to do my own thing.
It would not tempt me to join an organisation if that was offered.. Nothing wrong with them, but want to do my own thing.
Gassing Station | Business | Top of Page | What's New | My Stuff