Pitfalls of a Car Allowance?
Discussion
Hi All,
I'm considering dropping my company car and taking the optional car allowance instead, and was looking to get some peoples thoughts who had done the same thing.
Specifically, were there any negative elements that you hadn't considered before doing it? Are there any blatant things to avoid or other general things to be aware of with a Car Allowance. This would be my first one.
Thanks in advance!
Details
My company offer a 1.0 Focus Titanium X (non negotiable) and offer to pay my private miles (which I take).
Come April, between a new Focus and a pay rise I'd be looking at paying around £100 for the car, and £200 for the fuel in tax. A bargain really, and the Focus is a decent car generally speaking.
However, I do spend a lot of time in this car (around 20k business miles a year) and would like something more comfortable/nicer.
The Car Allowance my company offer is poor in my opinion, £4500pa and 20p a mile (17p for a diesel).
This does limit the 'newness' of a potential replacement, however, go a little older and it seems you can get a lot of car for your money.
As an example, top of my list at the moment is a 2015 Jaguar XE Portfolio (163bhp for the slightly better mpg) its under £17k and has 'all the toys'.
Accounting for the Car payment, Insurance, Tax, Annual Costs (4x tyres, discs & pads and a service), Fuel In (20k/12x17p) and Fuel Out (20k/12 and 10k/12 (personal) @ 50mpg and £1.50 p/l) I'm going to have £144 per year 'change' (based on the £300 tax saving and extra £243 allowance). Not a great deal should anything major go wrong, but at least its not costing me a lot more than previously. Ultimately any additional costs are just the cost of having a nicer car, and this car looks very nice.
I'm considering dropping my company car and taking the optional car allowance instead, and was looking to get some peoples thoughts who had done the same thing.
Specifically, were there any negative elements that you hadn't considered before doing it? Are there any blatant things to avoid or other general things to be aware of with a Car Allowance. This would be my first one.
Thanks in advance!
Details
My company offer a 1.0 Focus Titanium X (non negotiable) and offer to pay my private miles (which I take).
Come April, between a new Focus and a pay rise I'd be looking at paying around £100 for the car, and £200 for the fuel in tax. A bargain really, and the Focus is a decent car generally speaking.
However, I do spend a lot of time in this car (around 20k business miles a year) and would like something more comfortable/nicer.
The Car Allowance my company offer is poor in my opinion, £4500pa and 20p a mile (17p for a diesel).
This does limit the 'newness' of a potential replacement, however, go a little older and it seems you can get a lot of car for your money.
As an example, top of my list at the moment is a 2015 Jaguar XE Portfolio (163bhp for the slightly better mpg) its under £17k and has 'all the toys'.
Accounting for the Car payment, Insurance, Tax, Annual Costs (4x tyres, discs & pads and a service), Fuel In (20k/12x17p) and Fuel Out (20k/12 and 10k/12 (personal) @ 50mpg and £1.50 p/l) I'm going to have £144 per year 'change' (based on the £300 tax saving and extra £243 allowance). Not a great deal should anything major go wrong, but at least its not costing me a lot more than previously. Ultimately any additional costs are just the cost of having a nicer car, and this car looks very nice.
At tis time on a Sunday evening I can't figure out if you included the tax back on your business miles - you can claim the tax back on the difference between what you get (17p) and 45p for the first 10K miles and 25p for the rest. Note you only get the tax back - so, depending on your top tax rate, it's 20% or 40% of 28p then 8p.
Having said that, when we did this at work 15yrs ago, we reckoned the "peace-of-mind" value of the company car was £100/mth. It would be somewhat more now.
In your case, taking the company car, are you really paying £200/mth for private fuel - if so, surely that doesn't make sense?
Having said that, when we did this at work 15yrs ago, we reckoned the "peace-of-mind" value of the company car was £100/mth. It would be somewhat more now.
In your case, taking the company car, are you really paying £200/mth for private fuel - if so, surely that doesn't make sense?
Edited by Sheepshanks on Sunday 16th February 21:16
This is a similar issue I’m in - I do get a fully expensed A4 V6 Avant ‘Black’, but am paying @£270 tax pcm for fuel alone and only cover about 400 personal miles a month. This is about one tank of fuel (£65/70) so I’m thinking of dropping the fuel card as they will let me claim from home to office ... no brainer?
Can’t get out of the car scheme for 2 more years either, but then I will have to have something under 7 years old ... short/curlies?!
Tempted to stay in scheme with personal fuel for the ease of it, but I think it’s really costing me thousands for the convenience
Can’t get out of the car scheme for 2 more years either, but then I will have to have something under 7 years old ... short/curlies?!
Tempted to stay in scheme with personal fuel for the ease of it, but I think it’s really costing me thousands for the convenience
@Sheepshanks No, I've not accounted for the additional tax back, mainly as I was unsure on how it worked. Seemingly I can claim the extra between 20p and 45p (or 25p after 10k), but I have to do it through Self Assessment and you don't actually get the cash back, you only get that amount as an increase to your Tax Free allowance? Either way, I was treating that as a bonus come next year.
I agree that the 'peace-of-mind' value is very high. If I wake up tomorrow and my car wont start, or it gets stolen, or my wife hits a pothole and blows out a tyre (happened in December), generally I'm not worried as its all taken care of financially. This is the biggest thing holding me back getting my own car.
According to Comcar, next year my taxable amount will be £296 in a new Focus, nearly £340 in my current one but i should have shot of it by then.
Dropping the private miles and saving that £200 a month is an option. I only live 2 miles from the office, and we will start use my wife's new bigger car (Hyundai Tucson) for family trips at the weekend.
@Zedboy A lot of our sales guys have A5's and none of them take the fuel for that very reason.
I agree that the 'peace-of-mind' value is very high. If I wake up tomorrow and my car wont start, or it gets stolen, or my wife hits a pothole and blows out a tyre (happened in December), generally I'm not worried as its all taken care of financially. This is the biggest thing holding me back getting my own car.
According to Comcar, next year my taxable amount will be £296 in a new Focus, nearly £340 in my current one but i should have shot of it by then.
Dropping the private miles and saving that £200 a month is an option. I only live 2 miles from the office, and we will start use my wife's new bigger car (Hyundai Tucson) for family trips at the weekend.
@Zedboy A lot of our sales guys have A5's and none of them take the fuel for that very reason.
I opted out last year.
My mileage has dropped a fair bit but I found the BIK a bit of a boat anchor once you’re in the higher tax bracket. Factoring in the loss of car allowance, contribution for a slightly nicer car and my monthly damage waiver, my previous vRS was costing me a sodding fortune. Far more than I could have leased a 245 estate for privately. My diesel vRS was 30% for the last few months which stung.
When I was doing c.25k per year, the company car made sense because I didn’t care about servicing, tyres etc. I know only do 15k which is pretty much commuting and personal.
My allowance is crap but I’m still better off opting out and buying a car I actually want. My M140i (before fuel) is actually saving me money at the mo and I like it.
There’s a split at work now; people either opting out and taking the cash or they’re ordering EV’s which make loss of sense as company car drivers now.
There’s now risk involved opting out and buying used, but I think it’s worth it, especially if you’re a higher rate tax payer.
My mileage has dropped a fair bit but I found the BIK a bit of a boat anchor once you’re in the higher tax bracket. Factoring in the loss of car allowance, contribution for a slightly nicer car and my monthly damage waiver, my previous vRS was costing me a sodding fortune. Far more than I could have leased a 245 estate for privately. My diesel vRS was 30% for the last few months which stung.
When I was doing c.25k per year, the company car made sense because I didn’t care about servicing, tyres etc. I know only do 15k which is pretty much commuting and personal.
My allowance is crap but I’m still better off opting out and buying a car I actually want. My M140i (before fuel) is actually saving me money at the mo and I like it.
There’s a split at work now; people either opting out and taking the cash or they’re ordering EV’s which make loss of sense as company car drivers now.
There’s now risk involved opting out and buying used, but I think it’s worth it, especially if you’re a higher rate tax payer.
I spent a lot of time doing calculations and worked out that unless you have a huge commute or personal mileage (making a fuel card worth it) then opting out is the only way
That said, your allowance is fairly miserly.
How much personal mileage are you doing? I was paying circa £200 for a fuel card but, doing around 15k personal miles a year, found it was nowhere near financially savvy to have it.
That said, your allowance is fairly miserly.
How much personal mileage are you doing? I was paying circa £200 for a fuel card but, doing around 15k personal miles a year, found it was nowhere near financially savvy to have it.
My private miles are fairly low. My ‘commute’ is 2 miles each way, weekends are spent usually round the doors and maybe to a park/forest nearby (~20 miles). My wife’s family live about 400 miles away and we go to see them a few time’s a year.
Overall 200 a month is costing me I think. I could drop the private miles and keep the car still.
Overall 200 a month is costing me I think. I could drop the private miles and keep the car still.
TheMagicPirate said:
The Car Allowance my company offer is poor in my opinion, £4500pa and 20p a mile (17p for a diesel).
That sounds quite good to me against a Focus. I have an Outlander, but colleagues have C350e or 330e, we get about the same as you as a cash alternative. I get HMRC rate per mile whether I take the car or money, which is 14p at the moment for a 2.0 litre petrol.Over the years I have swapped backwards and forwards. I take the car get frustrated with dealing with the leasing company e.g. trying to get tyres replaced and then opt out.
I regret getting this car and wish I had taken the money.
Russ T Bolt said:
That sounds quite good to me against a Focus.
We got £7200 about 15yrs ago - against 318i petrol or A4 1.9 diesel, which were on 3yr/90K mile fully maintained contracts.A lot of the people who opted out got used Astras or Peugeot 307s!
The really weird thing was a couple of people bought 318i's convinced they could run them cheaper. Turned out the leasing company was spot on.
Sheepshanks said:
The really weird thing was a couple of people bought 318i's convinced they could run them cheaper. Turned out the leasing company was spot on.
I'm happy (or at least content) that going the Car Allowance route would cost me more money, but then if I get to drive a Jag/Audi/Whatever rather than the Focus, I could live with that.TheMagicPirate said:
I'm happy (or at least content) that going the Car Allowance route would cost me more money, but then if I get to drive a Jag/Audi/Whatever rather than the Focus, I could live with that.
Yes - I wanted an auto estate and we couldn't heve either of those things, depite the A4 Avant being cheaper to lease than the saloon "it's not on the list". I think our allowance was also pretty generous as they wanted us out of company cars.Biggest thing for me, is I became very concerned about where my own car was parked - I'd happily leave my company car in a random layby all day, or squash it into any available parking space in some dodgy hotel car park. On business use, you often can't control these things.
Sheepshanks said:
We got £7200 about 15yrs ago - against 318i petrol or A4 1.9 diesel, which were on 3yr/90K mile fully maintained contracts.
A lot of the people who opted out got used Astras or Peugeot 307s!
The really weird thing was a couple of people bought 318i's convinced they could run them cheaper. Turned out the leasing company was spot on.
They were really expensive cars, £600 per month for a 318 blimey.A lot of the people who opted out got used Astras or Peugeot 307s!
The really weird thing was a couple of people bought 318i's convinced they could run them cheaper. Turned out the leasing company was spot on.
By the same token in 2002 i got £309 per month, that got me an A4 3.0 quattro on the scheme we had then.
Same mileage/term
I got promoted before the 3 years was up and car allowance went up to 410, that would have got me a CLK500 cab.
Sheepshanks said:
We got £7200 about 15yrs ago - against 318i petrol or A4 1.9 diesel, which were on 3yr/90K mile fully maintained contracts.
A lot of the people who opted out got used Astras or Peugeot 307s!
The really weird thing was a couple of people bought 318i's convinced they could run them cheaper. Turned out the leasing company was spot on.
Guess it depends in how much tax you pay etc. A lot of the people who opted out got used Astras or Peugeot 307s!
The really weird thing was a couple of people bought 318i's convinced they could run them cheaper. Turned out the leasing company was spot on.
By opting out, I’m £540 better off each month. I could have lease a better vRS than I had and ran it for less than my old one cost in tax / loss of car allowance.
Court_S said:
Guess it depends in how much tax you pay etc.
By opting out, I’m £540 better off each month. I could have lease a better vRS than I had and ran it for less than my old one cost in tax / loss of car allowance.
It was 15yrs ago we did it, so the BIK has changed quite a bit since then, but a lot depends on the total mileage you're doing, and the mix of business and private.By opting out, I’m £540 better off each month. I could have lease a better vRS than I had and ran it for less than my old one cost in tax / loss of car allowance.
We also had 'younger' people who couldn't get credit and those that lived in dodgy post-codes who were getting insane insurance quotes.
It's quite surprising how many variables there are.
Edited by Sheepshanks on Monday 17th February 22:13
TheMagicPirate said:
@Sheepshanks No, I've not accounted for the additional tax back, mainly as I was unsure on how it worked. Seemingly I can claim the extra between 20p and 45p (or 25p after 10k), but I have to do it through Self Assessment and you don't actually get the cash back, you only get that amount as an increase to your Tax Free allowance? Either way, I was treating that as a bonus come next year.
If you already are self assessed, yes. If you are PAYE however you can just claim it up to a limit of £2500https://www.gov.uk/guidance/claim-income-tax-relie...
Quite a few people I know self-limited themselves to the £2500 even if they could claim more just because it was easier than self-assessment.
You can either get a reduction in your allowance or you can ask them to pay in a lump sum.
Unfortunately you don't get the extra, you get the tax relief on it. So for me I get 21p/mile which means at (45p-21p) * 20% I get about 5p extra. It's not a lot.
My company pays HMRC "Advisory Fuel Rates", this means however that I'm better off with a >2l petrol car as I only need to avg ~27.8mpg to break even. Unfortunately this avg is going up, it *was* <24mpg when I started but the loss of big petrol engines from the company car fleets and the lying of the car companies means it's getting closer to what I actually get.
Way back in January 1992 I was promoted to a job that came with a Company Car by my employer, who had just paid to relocate me from Ash (near Aldershot) to Gloucester.
As there was no cash or car allowance option back then I picked up my 1991 Rover 214SLi and thought all in life was good. Until my employer became effectively insolvent and by Christmas 1992 closed the office in Gloucester that I was running. So I had to return the car to their Head Office (probably should have parked it in a ditch) and then find myself a car.
And put the house up for sale as the job was the only reason I had moved there, knowing that relocating back would be at my expense!
Luckily a mate in the motor trade sorted me a car (that turned out to be stolen and unrecovered on cloned plates, but that's another story)! With the benefit of hindsight I should have spent another £2,000 for his Mercedes 190e, but hindsight is a precise science.
Anyway many years later in 2004 I got promoted to another role that came with a Company Car or a Car Allowance, interest free purchase loan and business mileage.
After my previous experience it had to be the car allowance and loan (even though the "interest free" element was taxed as a BIK if the loan was more than £5,000) and given the pitiful mileage rates permitted by HMRC it had to be a diesel. The Company Car option would only allow me a 2.0 TDi Golf if it had 3 doors - a 5 door would only come with the older 1.9TDi.
So I bought an AUC BMW 320td that was less than a year old and after 3 years with that I replaced it with a pre-registered 123d with a loan of £4,800!
Each year I made a claim for a tax rebate on the mileage rate and it all worked out pretty well - plus it meant when I left that firm in 2010 I still had a car.
While my experience is very limited, if the numbers work for opting out I'd say there are way less pitfalls to that than to taking the company car.
As there was no cash or car allowance option back then I picked up my 1991 Rover 214SLi and thought all in life was good. Until my employer became effectively insolvent and by Christmas 1992 closed the office in Gloucester that I was running. So I had to return the car to their Head Office (probably should have parked it in a ditch) and then find myself a car.
And put the house up for sale as the job was the only reason I had moved there, knowing that relocating back would be at my expense!
Luckily a mate in the motor trade sorted me a car (that turned out to be stolen and unrecovered on cloned plates, but that's another story)! With the benefit of hindsight I should have spent another £2,000 for his Mercedes 190e, but hindsight is a precise science.
Anyway many years later in 2004 I got promoted to another role that came with a Company Car or a Car Allowance, interest free purchase loan and business mileage.
After my previous experience it had to be the car allowance and loan (even though the "interest free" element was taxed as a BIK if the loan was more than £5,000) and given the pitiful mileage rates permitted by HMRC it had to be a diesel. The Company Car option would only allow me a 2.0 TDi Golf if it had 3 doors - a 5 door would only come with the older 1.9TDi.
So I bought an AUC BMW 320td that was less than a year old and after 3 years with that I replaced it with a pre-registered 123d with a loan of £4,800!
Each year I made a claim for a tax rebate on the mileage rate and it all worked out pretty well - plus it meant when I left that firm in 2010 I still had a car.
While my experience is very limited, if the numbers work for opting out I'd say there are way less pitfalls to that than to taking the company car.
I’ve recently opted out and now have an allowance.
The pitfalls I’ve noted are insurance as I had no NCD, some claims history and need business use so insurance is expensive for me. I’m 50 and pay over £1k a year. That was after a day of going on every comparison site and many phone calls too.
Additionally you don’t get the full tax benefit straight away. I don’t revert to full tax free allowance until the new tax year and can’t claim for the difference until then so in select I’m fronting some of the costs savings initially.
In time I will be a bit better off and I have much more choice.
Having said that when you are doing 28k miles a year you still need an economical and practical car so that may put a cap on tor original thoughts of getting something really exciting!
The pitfalls I’ve noted are insurance as I had no NCD, some claims history and need business use so insurance is expensive for me. I’m 50 and pay over £1k a year. That was after a day of going on every comparison site and many phone calls too.
Additionally you don’t get the full tax benefit straight away. I don’t revert to full tax free allowance until the new tax year and can’t claim for the difference until then so in select I’m fronting some of the costs savings initially.
In time I will be a bit better off and I have much more choice.
Having said that when you are doing 28k miles a year you still need an economical and practical car so that may put a cap on tor original thoughts of getting something really exciting!
Alfa Pete said:
I’ve recently opted out and now have an allowance.
The pitfalls I’ve noted are insurance as I had no NCD, some claims history and need business use so insurance is expensive for me. I’m 50 and pay over £1k a year. That was after a day of going on every comparison site and many phone calls too.
Additionally you don’t get the full tax benefit straight away. I don’t revert to full tax free allowance until the new tax year and can’t claim for the difference until then so in select I’m fronting some of the costs savings initially.
In time I will be a bit better off and I have much more choice.
Having said that when you are doing 28k miles a year you still need an economical and practical car so that may put a cap on tor original thoughts of getting something really exciting!
That’s a good point, it took a while before I found someone that would count my company car no claims (a broker in the end).The pitfalls I’ve noted are insurance as I had no NCD, some claims history and need business use so insurance is expensive for me. I’m 50 and pay over £1k a year. That was after a day of going on every comparison site and many phone calls too.
Additionally you don’t get the full tax benefit straight away. I don’t revert to full tax free allowance until the new tax year and can’t claim for the difference until then so in select I’m fronting some of the costs savings initially.
In time I will be a bit better off and I have much more choice.
Having said that when you are doing 28k miles a year you still need an economical and practical car so that may put a cap on tor original thoughts of getting something really exciting!
The tax code thing is a pain too, but only two more pay cheques until I get my full tax free allowance again.
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