Company Car vs Taking the money (and what to do with it)

[smithyithy]

Realise this is probably a common topic guys, really just wanted to ask on here as maybe I'll get some different perspectives and I might get my thoughts in order if I write them all down

Sorry if this seems like an essay, it's easier for me to kinda write it all down to make sense of it myself. Bullet points for extra clarity?:

• Saving to buy first home. I've only being 'seriously' saving for about 6 months, but that's since clearing some debts and freeing up money, so I'm in it 100% now
• Will be buying alone, on a modest budget / salary - say £100-130k mortgage (really up in the air at the moment as my priority is to just build a good deposit)
• I'm not on a tonne of money, but I do get a company car which all things considered, saves me a lot of money each year (I've done the car allowance + fancy car before, it was fun but not cheap)
• I've recently been in talks for a promotion, it's pretty much a go-er but details still need ironing out..

• So let's say my current salary is £25k, plus the company car. The cars in my 'band' are things like a Focus, Golf, i3 etc. So the BIK tax is roughly £60/month. I can also 'trade down' a band and get money back. The band below has things like Fiesta, Polo, Corsa. The pay-back is £50/month pre-tax. So take that figure off the lower BIK of those cars - it's almost a free car. Insurance, tax, servicing, breakdown is all included. We don't have fuel cards, but my commute is 220 miles / week motorway, so nothing too bad.
• The equivalent car allowance for my band is £4,500 per year, pre-tax. With that are caveats on the car you can have, mainly: less than 5 years old, 4 or 5 doors, must have fully comp insurance with business usage.
• I had a variety of company car for the first 2 years I worked here (we've TUPE'd twice but kept the same T's & C's etc), the overall value of which I loved. Then I took the car allowance and bought a new Cooper S. Had that 3 years, loved it, but it was still costing me a lot each month - finance was more than my allowance after tax, insurance wasn't cheap, road tax, servicing, flat tyres (3 in as many months, seriously bad luck and those skinny run flats are like £160 each!). Anyway I did have my fun with that, handed it back in October and I've since been in a a few different pool / temp hire cars. A month or 2 back, I was told I could place an order for an actual long term company car, so I took the downgrade and went for the new Fiesta, which is due for delivery in late August.

• Now, this new role that I'm going for (it is actually being created for me, as I can't just get a title change and pay bump, it has to be newly made contract / position). It won't include a company car. Or at least my line manager is 99% sure. A lot of us only still have company cars because we TUPE'd from car-dependant roles, and as such got to keep them, but going into a brand new position / contract they don't need to provide one.
• Likewise, they won't offer a Car Allowance either (on an official level). So when going for this new negotiation, I'd use my current base salary, plus the equivalent car allowance, to get a base figure (say £29.5k) to negotiate up from. So effectively as well as the basic pay increase I should still keep the equivalent of the Car Allowance, but it will just form part of my total new salary and won't be subject to the Car Allowance terms and conditions (so in theory I could drive a 20 year old MX5 to work).
• Initially I thought this was great as it means I can buy and run something fun again, but I am really determined to save right now and to me, the company car still represents the best overall value for someone like myself where the other associated running costs can still be high.
• The car is ordered and on it's way now though so I may still have to take it. These are conditions that I'll be negotiating for soon and trying to work out what's best, so really why I'm asking here..

• So, do I take the company car? It's one 'flat rate' cost each month (increasing each year of course), we keep the cars for 4 years, so that's essentially 4 years of hassle-free motoring and a predictable cost.
• Do I take the extra money and.. Lease something? There seems to be plenty of cheap cars to lease, say in the £150-175/month range. I'd want to keep it as cheap as possible. My concern with this is I'll be looking to buy in the next 18-24 months, so the lease would need to be shorter than that to give me room to make adjustments when the time comes. Really it's a case of - is a budget lease going to cost less overall than the equivalent company car, and is it going to provide me with anything better for similar money? (again, I'm not going for anything fancy, but the cheapest leases seem to be Citroen C2's, which compared to the Fiesta, hmm.....)
• Do I take the extra money and buy a shed? I like the idea of this, essentially it gives me the most freedom as the car is mine, I can sell, swap, change it at will. It just depends how I work it - if I went bottom-end (say, sub-£1k) I'd probably save the most money long term, but with potential risk of unforeseen expenses and headaches. Or I could go a bit higher, say up to around £5k and get something that will be good for a few years and won't lose much money? The trouble is, to buy anything of that kinda value would mean wither dipping into my existing savings and recouping that money through the extra salary over time, or taking out a loan, which has interest obviously so it just seems like an ineffective use of money...

Sorry for that massive story guys! It's all been kinda thrown at me recently and with trying to sort out all my savings, move money around, push for this new role and everything.. it's a bit of a headache!

So, would you still view the company car as the best value / safest option if it was still to be available to me? Hassle-free, fixed-price motoring for up to 4 years, long enough to cover the saving, buying, and settling portions of buying my first house?

Or could I be savvy, take the extra moolah, and throw it at a cheap lease, or at a shed or cheap runaround of some capacity?

Any and all answers welcome, tell me if I'm talking bks, share any similar experiences or expertise.. It's looking likely to start rolling in the next few weeks so, I need to have some kind of idea what's the best option..

Many thanks!

[emicen]

I’ve never had a company car but in your situation I wouldn’t go for anything else.

Running it is risk free, any personal car is not.

Also, your car criteria for work stipulates under 5 years old, have a look at what £4-5k buys you at 4-5 years old. It’s not a very inspiring list, masses of puddle jumpers for motorway commuting work doesn’t sound great to me.

[bogie]

You cash alternative is not that high, I would stick with a company car with low BIK and enjoy hassle free motoring, in perhaps something not as interesting as you would like. Later on as your salary goes up you can always get a 2nd toy car if funds permit.

[anonymous-user]

I get a £390 a month car allowance and I can choose from a Golf, A3 or 1 series diesel. The BIK for these at 40% is around £200 a month, so I see a company car as costing me around £430 compared to taking (and paying tax on) the allowance.

I run a £1200 shed at the moment, and I am very happy to take the allowance. I personally would not take the company car, I would either lease the cheapest car I could or buy something as new and as cheap as possible. I actually looked into buying a Dacia/Hyundai/Seat for under £10k but not sure I could put up with the lack of aircon/alloys/ electric windows etc.

The take home for £25k is £1,698.41, the take home for £29,500 is £1,953.41 so you would be £255 a month better off if you took the car allowance instead of the car.

You say the BIK on that car is £60 a month so you are roughly looking at a company car costing you £315 a month. I don't 100% understand if you have to have a car newer that 5 years old or can run a shed?

If you have the choice of a company car, leasing or buying something under 5 years old I don't think there will be a lot in it to be honest per month.

[Gio G]

bogie said:

You cash alternative is not that high, I would stick with a company car with low BIK and enjoy hassle free motoring, in perhaps something not as interesting as you would like. Later on as your salary goes up you can always get a 2nd toy car if funds permit.

What he said, car allowance is pretty low, especially after tax... Go for company car with low BIK..

G

[smithyithy]

Thanks for the replies so far guys!

Joey - it's just the way it works at the moment that if I take the Car Allowance (which shows as a separate figure on my wage slip) then I'm bound by their conditions like the 5 year rule..

I don't know yet what the outcome of the negotiations will be. They may agree to increase my salary, but let me keep the Company Car / Car Allowance. Or they might say no to that, and just add an additional £4500 to whatever my new salary is, in which case I could buy a shed or something older.

ETA: To me, the company does represent better value than the equivalent car allowance, I agree it'snot a great amount after tax and insurance and other running costs still end up running me quite a bit. The company car, with everything included, is worth more than £4500/year to me personally, I feel. I might argue that point actually, that the £4500 isn't particularly great as an alternative, when all other things are taken into account.

It's a really tricky one.. Company car or personal car offer the most flexibility, see at the moment I do about 13k miles a year total, so if I lease / finance something I need to have 12k miles and pay the excess charge at the end, or overpay for 15k.

But if I get my house in ~2 years, it'll be much closer to work (based on the areas I'm scoping out) so my annual mileage will almost halve.

Another spanner in the works is that I still have my bike, which is paid off and worth around £6.5 - 7k in the current market.. I know I'll have to sell this when the time comes (for the extra deposit money and because I probably won't have a garage / storage). But I don't feel bad about holding on to it for a couple years because it's holding value really well. I thought about swapping it for a car of similar value if I don't get the allowance, but I think a car in that price range is going to depreciate a lot faster than the bike is doing - it's almost quite 'safe' to keep that money in the bike for the time being and just enjoy it as a toy while it's still holding value..

Edited by smithyithy on Wednesday 11th July 12:12

[Somebody]

OP, I think you've come to the conclusion yourself by valuing the hassle free factor to you. Basically it's someone else's (i.e. the company's) responsibility to keep you mobile in exchange for the tax you pay on the car BIK.

[smithyithy]

Somebody said:

OP, I think you've come to the conclusion yourself by valuing the hassle free factor to you. Basically it's someone else's (i.e. the company's) responsibility to keep you mobile in exchange for the tax you pay on the car BIK.

That's what I'm thinking dude. Although it's a 4 year commitment (assuming I stay with the company / department for that period), but it's one that can be planned out financially and that appeals to me when I might have a lot changing in the next few years.

I think I'm definitely going to push for it. If that fails, I'll have to negotiate for a more competitive amount of equivalent money and decide what to do from there (lease new buy old etc)

[Condi]

The only counter argument you might want to consider is that a mortgage company will include your car allowance in the calculations of how much they will lend you, so a 5 grand a year car allowance might give you an extra 25 grand borrowing.

Otherwise I would tend to agree that with a maximum car age of 5 years and £4500 car allowance before tax probably doesnt make much sense to run your own.

[smithyithy]

That's a good point dude, I didn't really consider that. Especially if they do it as an 'unofficial' car allowance, so the bank would just see a single salary figure. I'll have to do a couple of quick mortgage calculations with my bank and see what comparative figures it throws up..

[Condi]

Its a continuous payment and part of your contract so not an issue, will just be viewed as part of your salary.


I know you obviously have increased costs if you run your own car vs company car, but for some reason its the income which matters.