Company Car Allowance Rates

[jonby]

I have been asked by an existing employee who currently has a company car for a car allowance

I'm happy to give him one but have no idea what an appropriate rate is

He currently has an Audi A5 2.0tdi sport as his company car which we bought about 6 mths old for £26k two and a half yrs ago. Effectively he was employed on the basis he would get a new company car costing around £25k i.e. a basicish exec diesel 3 series /c class/a4 type car but we both agreed at the time to get something slightly better, but second hand, as he gets a nicer car and we would get a better residual

So what do we pay him as a car allowance in lieu ? £500 per month ? And what do we pay him as a mileage claim for fuel (forgetting tax efficiencies of that for a moment) i.e if we are paying a car allowance that is 'appropriate', what do you then pay for business miles to cover fuel - 20p per mile ?

[Inverness]

In todays "sue now and ask questions later" I would not go down that route as they will become a "grey fleet" driver. The reason they call it grey is there are so many "grey" areas.

[stumpage]

This is why I never let my sales team have a car allowance, or let people use their own cars for business.

I know that all the cars people are using for work are kept in tip top condition. If a rep turns up on a Monday with a dirty car, then I have a word, I also keep an eye on the mileage and expenses to make sure they have been serviced properly etc. The thing is a company car belongs to the company, so the company has a say in how they are looked after and treated.

PS. I may sound a nightmare but being a petrol head they always get nicer cars. They never end up with poverty spec on anything.

[Ozone]

OP as others have said it does open up a whole world of options if the employee gets their own vehicle.
Will you be putting any restrictions on the car used for work? Can they top up and by a 911 or decide to save the money and buy a 15 year old Astra?
Will you insist on copies of their insurance and mot's etc to prove that they are insured/ok for work use. Will you insist they have breakdown cover to stop days off through sorting out car 'issues'.

It can work without a problem if the employee takes a reasonable view of the car/usage and your expectations/requirements.

Sorry i can't help with the rates.

[texasjohn]

jonby said:

Effectively he was employed on the basis he would get a new company car costing around £25k i.e. a basicish exec diesel 3 series /c class/a4 type car but we both agreed at the time to get something slightly better, but second hand, as he gets a nicer car and we would get a better residual

So what do we pay him as a car allowance in lieu ? £500 per month ? And what do we pay him as a mileage claim for fuel (forgetting tax efficiencies of that for a moment) i.e if we are paying a car allowance that is 'appropriate', what do you then pay for business miles to cover fuel - 20p per mile ?

Notwithstanding valid comments above about giving consideration to the 'grey fleet'...

If you give him an allowance in lieu of a car then it needs to be reasonable, a good idea would be the 'all in' lease rate for that type of car.

A 25k ish premium brand exec diesel car is going to be in the order of £380-480 a month through a big lease company like Arval or Lex.

How often would you replace the car if he continued to have a company car? Reason I ask is because the monthly lease rate in £ tends to be less the longer the term of the lease.

In my last company we kept the cars 4 years, a 320d ED was about £380 a month. In my current company we only have our cars for 3 years and a 320d ED is priced at nearer £480 a month. Same car, same mileage per annum, same lease company (Lex), same terms (maintenance repairs, brakes, tyres and road tax included in rate). The only differentiator is the length of the lease at 36 v 48 months.

If he is running his own car but you are paying an allowance to him you can in theory pay him up to the maximum 45p/25p per mile rates for using his own car. In practice most employers will continue to pay the 'fuel only' rate of 13p per mile recognising they are paying an allowance which should in part pay towards his running costs for the car, and your employee can claim the difference between that and the higher rate from HMRC as tax relief.

While he will pay tax on the car allowance you give him, he's also going to save something in the order of £100 (if a 20% taxpayer) to £200 (if a 40% taxpayer) a month in tax on an A5 TDI not having a company car and taking cash in lieu.

Outside of sales functions of a business, most 40% taxpayers with a company car get a car as a perk of the job and if they don't do many miles a year it almost always makes more sense for them to take the cash once they have done the sums and worked it out.

If you're clocking up 30,000 a year like me though you tend to appreciate the free tyres and someone else holding the depreciation cost!

[bogie]

regarding rates, they vary a lot if you included maintenance and insurance, then stick on 20-30K business miles a year

all of a sudden a £25K exec car for £400 a month isnt realistic.

We get £650a month and most guys just about manage to be in a 320d with a few options

so make sure to compare like with like on the quotes you get

personally i just take the cash and run something myself a bit older

[TomJS]

My firm specialises in sales recruitment, and considers a company car as being worth £5k when working out the salary package of our candidates for billing purposes.