Car allowance question

[okgo]

Hi all,

If for example you took a job with a basic salary of £30k which was probably a few k below market rate for the job, but they also offered a £5k car allowance per year (car not needed, and would never be used in this industry) which is added as an extra lump of money for tax and recruitment purposes (apparently) would this be the same as someone else that was on £35k with no car allowance?

It seems an odd thing, but I can see it would save them money on recruitment costs... But I'm interested to know whether the taxation on that £5k is higher than it would be on a normal salary...

TIA

[Eric Mc]

Carv allowances of this type are simply taxed (and NI'd) as if it was additional salary.

[okgo]

Eric Mc said:

Carv allowances of this type are simply taxed (and NI'd) as if it was additional salary.

I see, so quite a smart move from them then if its exactly the same as earning £35k with no car allowance.

[samwell]

There are also pension considerations to take into account:

The pension scheme may not include a car allowance in it's pensionable salary, it may specify that contributions are made on basic salary only, so the company pays less towards your retirement.

It also reduces the level of death in service benefits they would have to pay.

[Onemcs]

My car allowance is just added onto my salary and taxed etc accordingly

Sometimes they do this if they want to pay more for you but dont want to cause fuss with exisiting employee's etc.

[okgo]

samwell said:

There are also pension considerations to take into account:

The pension scheme may not include a car allowance in it's pensionable salary, it may specify that contributions are made on basic salary only, so the company pays less towards your retirement.

It also reduces the level of death in service benefits they would have to pay.

Thanks, that is an interesting thought!

I am not so concerened with pensions at the minute though.

[sinizter]

okgo said:

I see, so quite a smart move from them then if its exactly the same as earning £35k with no car allowance.

How is it a smart move from them to have an additional item to admin ?

[okgo]

sinizter said:

How is it a smart move from them to have an additional item to admin ?

Because its a large company and the staff in out is probably pretty high, so they save thousands per year on recruitment costs are they only pay the rec companies based on basic salary, not the salary with the car allowance.

[anonymous-user]

many rec firms charge a fee on the car allowance

as well as it not being pensionable, death in service benefitable, it might not be bonusable

i.e. £30k salary, £5k car allowance, 10% bonus = £3k; £35k salary, 10% bonus = £3.5k

[Deva Link]

okgo said:

Because its a large company and the staff in out is probably pretty high, so they save thousands per year on recruitment costs are they only pay the rec companies based on basic salary, not the salary with the car allowance.

I'd be more concerned about why a large company would fiddle things to save a few hundred quid.

The snag with car allowances is they're not embedded in your salary, so, as others have commented, they don't count for pensions etc. You should be concerned about pensions unless you're of independant means. If you get overtime, they're not part of your hourly rate. It won't count for bonuses. You might find it doesn't get taken into account for credit applications.

The company could easily change the allowance and might even do alway with altogether if you don't have a job which needs a car. Or they could go all green and insist you buy a Prius with it.

[randlemarcus]

Or they could pay a different mileage rate to folks with a company car, or car allowance.

We are a cynical bunch, aren't we?

[HappySilver]

As others have said many benefits use base salary, lowering this will impact you negatively especially in terms of pension, overtime and any bonus. The other consideration is that car allowances tend to remain fixed for many years i.e. they do not move with the base salary, as such you get a 5% rise on a £35,000 your salary moves to £36,750, if on £30,000 plus a fixed £5000 car allowance you end up on £36,500. After a few years you will find your total compensation has drifted considerably behind the guy on a flat £35,000 given this and that you are getting less pension, overtime, bonus etc.

I hear what you are saying about pension, but look at the cash impact on you e.g. if they put in 10% of base you are £500 in year one and the amount will grow year on year for the reason I explain above.

[okgo]

Thanks for your thoughts, and don't apologise for being cynical, it's the only way to get to the bottom of things sometimes!

Wrt to the percentage based stuff, this job would be a max 2 year type thing so not to worried about anything like that. It's a sales job so annual bonus is not applicable as the commission is on top monthly (or qtrly)