Appropriate Car Allowance ?

[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 ?

Does anyone here receive a car allowance that would otherwise be given a similarish value of company car and if so whata do you receive in annaul allowance and fuel claims ?

This particular employee does 10-15k business miles per year and about 10k private miles including commuting

[kambites]

400 a month should be plenty for a basic spec small-engined diesel rep-mobile. I think mine is somewhere around 350 and I could just about get into the bottom of the 3-series range with that.

[StottyZr]

Mobile engineers at my place get £400/month and 18p/mile. Managers get £500/month.

So over 12months and 15,000 miles you'd be paying £7500.

[eltax91]

I'm a second line IT Engineer. Travelling a lot. I get £440pm before tax + 25ppm. There are no restrictions on the vehicle I have.

[C8PPO]

I work for a large corp, cars I'm entitled to include things like E250, A5, A6, 530 (inc Tourer), and my cash allowance is £7k p.a.

[Dodsy]

I do around 30k business miles pa, I get £6k allowance and 30p per mile expenses. I choose to run older cars , just looking for a new one right now looking at 5 year old Jag S type V8-R's. I expect to break even on the running costs, depreciation and fuel.

If I chose to run a diesel I would turn a healthy profit.

If you require the employee to have a new (or nearly new car) I'm not sure the figures would stack up once depreciation and servicing have been accounted for.

[jonby]

Thanks for this - it's really helpful

This chap is a senior valuer/manager - From what you've all said so far, it sounds like £450ish may well be about right (we want to be 'decent' - not too stingy, not over generous either)

Also sounds like 20p per mile is about right

More answers the better though so keep them coming !!!

[jonby]

Dodsy said:

I do around 30k business miles pa, I get £6k allowance and 30p per mile expenses. I choose to run older cars , just looking for a new one right now looking at 5 year old Jag S type V8-R's. I expect to break even on the running costs, depreciation and fuel.

If I chose to run a diesel I would turn a healthy profit.

If you require the employee to have a new (or nearly new car) I'm not sure the figures would stack up once depreciation and servicing have been accounted for.

I think he's mad (financially) but it suits us for lots of reasons, it's his request, so who are we to argue !

Our requirement is that the car should be respectable & appropriate but happy for him to have a 4/5 yr old car

He is looking at a used Freelander or Disco I think, which I think is the type of car you could get away with pretty much any age of

I'm not sure if he realises that you can't expect the full Revenue guidelines of 45p per mile on the first 10k if you get a car allowance as well............

[randlemarcus]

jonby said:

I'm not sure if he realises that you can't expect the full Revenue guidelines of 45p per mile on the first 10k if you get a car allowance as well............

Well, you can get the full allowance, but he'll have to go to HMRC with his Self-assessment and claim back the difference between his mileage rate and the 45p. Tell him that afterwards...

[Bisonhead]

I have been offered £600 per month which is taxed (£480 realistically) the caveat being that the car has to be less than 3 years old and we have to buy it ourselves!

The points to consider are: is the cost of servicing and maintaining the car going to be prohibitive? Will allowance cover the rising cost of fuel in the future, do you want said chappy to make a profit from car allowance?

[RicksAlfas]

You need to think about it from the company's point of view.
£500 a month in his pocket will cost you far more than any HP or lease payments on a 320d.
He will make a saving in company car tax so I think it's fair to offset that in your calculations too.

[jonby]

Bisonhead said:

I have been offered £600 per month which is taxed (£480 realistically) the caveat being that the car has to be less than 3 years old and we have to buy it ourselves!

The points to consider are: is the cost of servicing and maintaining the car going to be prohibitive? Will allowance cover the rising cost of fuel in the future, do you want said chappy to make a profit from car allowance?

Don't mind if he makes a profit, but don't want us to lose out financially (which I'm fairly confident we won't)

When you run a car as an employer, it's pretty much accepted you have to provide fairly new, service at main dealer, etc. If he chooses not too, good luck to him

[rob.e]

I have a company car + fuel card. The scheme works on a max value for my grade, ie list price limit for choosing a new car for me is £28k.

If I opt out (ie giving up both car and fuel card) I would get £8,100 pa gross. I'd then be able to claim mileage for business miles at current HMRC recommended rates.

HTH.

[jonby]

RicksAlfas said:

You need to think about it from the company's point of view.
£500 a month in his pocket will cost you far more than any HP or lease payments on a 320d.
He will make a saving in company car tax so I think it's fair to offset that in your calculations too.

Depends what the HP/lease agreement includes

Insurance (including for business, not just commuting)
Annual Road Tax
Breakdown cover
Servicing
Tyres, brakes & other consumables

[jonby]

rob.e said:

I have a company car + fuel card. The scheme works on a max value for my grade, ie list price limit for choosing a new car for me is £28k.

If I opt out (ie giving up both car and fuel card) I would get £8,100 pa gross. I'd then be able to claim mileage for business miles at current HMRC recommended rates.

HTH.

That sounds pretty generous, unless by 'HMRC recommended rates' you mean there is a different recommended rate for what to pay employees in these circumstances to the tax free rates HMRC publish an employee can claim when running their own car

[Deva Link]

jonby said:

Thanks for this - it's really helpful

This chap is a senior valuer/manager - From what you've all said so far, it sounds like £450ish may well be about right (we want to be 'decent' - not too stingy, not over generous either)

Also sounds like 20p per mile is about right

More answers the better though so keep them coming !!!

Bear in mind he'll pay tax and NI on the allowance - it's treated like salary. So if he's paying tax at 40% he's only going to get £270 out of it, ignoring NI (I can't do the NI sums as he could be around, or over, the UEL.

However if he is a 40% tax payer he'll get more back from HMRC for the mileage allowance. If you pay him 20p, he can claim the tax back on the difference between that and the 45p rate for the first 10K business miles and 25p for mileage over that. Note he only gets the tax on the difference, not the whole amount.

He should also check how much apporpriate insurance is going to cost - it might be fine, but some of our people really struggled due to address and driving history.

From a business point of view, what you probably ought to do is work out what it's costing you now and try and keep it revenue neutral.

Bear in mind you still have duty of care responsibilites so you should have a system for check his licence, insurance and mainteneance is carried out properly. You may need to put rules in place to ensure he has an appropriate car, not too old etc etc.

[jonby]

Deva Link said:

Bear in mind he'll pay tax and NI on the allowance - it's treated like salary. So if he's paying tax at 40% he's only going to get £270 out of it, ignoring NI (I can't do the NI sums as he could be around, or over, the UEL.

However if he is a 40% tax payer he'll get more back from HMRC for the mileage allowance. If you pay him 20p, he can claim the tax back on the difference between that and the 45p rate for the first 10K business miles and 25p for mileage over that. Note he only gets the tax on the difference, not the whole amount.

He should also check how much apporpriate insurance is going to cost - it might be fine, but some of our people really struggled due to address and driving history.

From a business point of view, what you probably ought to do is work out what it's costing you now and try and keep it revenue neutral.

Bear in mind you still have duty of care responsibilites so you should have a system for check his licence, insurance and mainteneance is carried out properly. You may need to put rules in place to ensure he has an approraite car, not too old etc etc.

Appreciate most of those points and had thought about most of it but it's good to see it all in one place as it summarises it quite nicely

There seems to be a huge difference between what one firm offers as an allowance and another - no real guidelines in place

We will gain slightly & the employee lose primarily because we currently are fairly generous on fuel for private miles - that will dissapear with an allowance and I don't think this employee has fully taken that into account

[RicksAlfas]

jonby said:

RicksAlfas said:

You need to think about it from the company's point of view.
£500 a month in his pocket will cost you far more than any HP or lease payments on a 320d.
He will make a saving in company car tax so I think it's fair to offset that in your calculations too.

Depends what the HP/lease agreement includes

Insurance (including for business, not just commuting)
Annual Road Tax
Breakdown cover
Servicing
Tyres, brakes & other consumables

They're not huge costs these days on something like a 320ED - insurance say £750, zero road tax first year, £20 after that, £350 up front servicing for 5 years, 3 year warranty and breakdown cover, say £400 tyres every 20,000 miles or so.

All I'm saying is that whenever I've looked at this before, it's cheaper for the company to supply and maintain a sensible car than it is to fork out additional monthly allowances to the employee so you must look at it from your point of view as well as his.

[Deva Link]

jonby said:

There seems to be a huge difference between what one firm offers as an allowance and another - no real guidelines in place.

I think a lot of it goes back to the old days of fully expensed 'perk' cars in big corporates and they take a lot of money to replace especially if there's not much business mileage content.

I know someone who opted out of a 320d for £600/mth. Bizzarely he then went out and bought a new 320d. Doing 30K year (25K business) he reckoned there was nothing in it and wished he's had the peace of mind of having the company car.

jonby said:

We will gain slightly & the employee lose primarily because we currently are fairly generous on fuel for private miles - that will dissapear with an allowance and I don't think this employee has fully taken that into account

A significant reason we pushed people to opt out was because of the cost of being stuck with cars when they left. It wasn't really tighly managed enough but with a fleet of about 100 cars we always seemed to end up with about half-a-dozen kicking around, and employees HATE being given someone else's cast-off car.

[Pablo16v]

As long as you allow him to run a slightly older car then £450 / month gross should be sufficient to get into 3-5 year old semi-exec stuff, although he will struggle to run 2-3 year old A5’s and suchlike, I would think, without dipping into his own pockets. I was on £450 for a few years and although I chose to drive 6-7 year old cars, I could easily have picked up something newer, say Golf size, and still had enough left over to cover servicing and tyres etc. I’m now on £550 / month in a non-managerial role and I also get a fuel card that covers all business and personal mileage. Unfortunately the place I now work has a 5 year or younger rule for our cars.