Car allowance/BIK question…

[SPD14]

My wife gets a monthly car allowance of £425. Her car BIK (330e touring) is approximately £190pm - what should happen to the difference?

As soon as the car was delivered, her gross wage went down by £425pm, so the car appears to be costing that amount. If that’s the case, what’s the point of going for a low-BIK car?

We’re both very confused by the whole company car process, so any help to understand would be appreciated

[750turbo]

Stick her details in here.

https://comcar.co.uk/companycar/tax/select/

[Scrump]

If car allowance is taken as part of the salary then it is taxed at normal PAYE rates; alternatively car allowance can be given up in return for a company car - (it basically covers the cost of the lease.)
When a company car is taken then the tax due is no longer based on PAYE rates, it based on Benefit In Kind calculation. (COMCAR website is good for calculating this).

In the case of your wife, the £425 has been given up in exchange for the car, and in addition she owes tax on the BIK. (She didn't actually give up £425 as that amount would have been taxed at 20% or 40% had she taken it as part of her salary.)

HTH

[SPD14]

750turbo said:

Stick her details in here.

https://comcar.co.uk/companycar/tax/select/

Thanks for the reply. I know how much the car should cost per month, I just don't understand why we don't receive the difference between the cost of the car (£190pm) and her car allowance (£425pm) - £235 difference. The whole thing baffles me.

If the car BIK was HIGHER than the car allowance, I would expect to pay the difference, so I don't understand why we don't receive the difference as the car BIK is LOWER than her allowance?

[Scrump]

SPD14 said:

Thanks for the reply. I know how much the car should cost per month, I just don't understand why we don't receive the difference between the cost of the car (£190pm) and her car allowance (£425pm) - £235 difference. The whole thing baffles me.

If the car BIK was HIGHER than the car allowance, I would expect to pay the difference, so I don't understand why we don't receive the difference as the car BIK is LOWER than her allowance?

The car allowance is to pay for the car. The BIK is how much the govt think that perk is worth as a benefit. They are different things.

[SPD14]

Scrump said:

The car allowance is to pay for the car. The BIK is how much the govt think that perk is worth as a benefit. They are different things.

Thanks for your replies Scrump, that makes sense!

In that case then, if she theoretically had a car allowance of £10k per month (silly figure), as soon as she takes a company car she loses every penny of that £10k pm?

[Countdown]

SPD14 said:

Thanks for your replies Scrump, that makes sense!

In that case then, if she theoretically had a car allowance of £10k per month (silly figure), as soon as she takes a company car she loses every penny of that £10k pm?

Yes

[dibblecorse]

SPD14 said:

Thanks for the reply. I know how much the car should cost per month, I just don't understand why we don't receive the difference between the cost of the car (£190pm) and her car allowance (£425pm) - £235 difference. The whole thing baffles me.

If the car BIK was HIGHER than the car allowance, I would expect to pay the difference, so I don't understand why we don't receive the difference as the car BIK is LOWER than her allowance?

The car allowance is now an irrelevance, your wife seems to have withdrawn from the car allowance scheme and taken a company car.

I am presuming the company car comes with fully comp insurance with business cover, full maintenence inc wear and tear items etc.

You can't have the car and the allowance, also you have no idea what the car is costing them to place on your driveway.

If you chose a high BIK car then again the allowance is irrelavent, you pay the tax based on the car you choose, as things stand your wife is paying £190 a month in tax for a fully funded brand new car.

The two things do not co-exist its a simple 'one or the other' choice .....

[Scrump]

SPD14 said:

Thanks for your replies Scrump, that makes sense!

In that case then, if she theoretically had a car allowance of £10k per month (silly figure), as soon as she takes a company car she loses every penny of that £10k pm?

My experience is that the company will pay any excess car allowance back into salary where it is taxed at normal PAYE rates.
Just as if a company car is chosen which costs more than the car allowance then the extra cost can be taken out of normal salary. (All agreed in advance of course).

[Sheepshanks]

She appears to have swapped her car allowance for a company car. So now she pays BIK on the company car.

The car mentioned would have a total cost (buying, insuring, servicing etc) of way more than the nett value of £425/mth.

[SPD14]

Thanks for all the replies, the muddy waters are now a bit clearer!

We’re still getting the car at a far better price than via personal leasing, so we’ve no complaints there. I was only asking the question as her company are offering to raise her car allowance as part of her package, but as I thought, that’s meaningless as she has the company car.

[Sheepshanks]

The car vs allowance are a bit out of line - that car would be costing the company quite a bit more than £425.

Our allowance, for a more 'ordinary' level of car, was £600/mth.

The cash or car thing is a tough calculation - when we (medium size company) went through it's amazing how variable people's cirumstances are.

[Muzzer79]

SPD14 said:

My wife gets a monthly car allowance of £425. Her car BIK (330e touring) is approximately £190pm - what should happen to the difference?

As soon as the car was delivered, her gross wage went down by £425pm, so the car appears to be costing that amount. If that’s the case, what’s the point of going for a low-BIK car?

We’re both very confused by the whole company car process, so any help to understand would be appreciated

As stated, you either get a car allowance or a company car that attracts BIK. You don't get both.

Your wife appears to have opted in to the car scheme. She therefore loses her £425 a month and starts paying BIK at £190pm

[dibblecorse]

Scrump said:

My experience is that the company will pay any excess car allowance back into salary where it is taxed at normal PAYE rates.

You have been exceptionally lucky then as having spend the last 20 odd years working adjacent to HR in some very large organisations I have never ever seen someone get a car and a residual car allowance payment.

Just out of curiosity which company ? If not comfortable answering (which is cool) could you say what sector they were in ?

[Scrump]

dibblecorse said:

You have been exceptionally lucky then as having spend the last 20 odd years working adjacent to HR in some very large organisations I have never ever seen someone get a car and a residual car allowance payment.

Just out of curiosity which company ? If not comfortable answering (which is cool) could you say what sector they were in ?

More than one employer, I have chosen company cars from the approved list which cost less than my allowance and had the difference paid into my salary and I have chosen company cars which cost slightly more than my allowance and have been allowed to ‘top up’ from my salary.

I am only speaking from my own experience, no idea whether or not this is unusual.

[PSRG]

dibblecorse said:

Scrump said:

My experience is that the company will pay any excess car allowance back into salary where it is taxed at normal PAYE rates.

You have been exceptionally lucky then as having spend the last 20 odd years working adjacent to HR in some very large organisations I have never ever seen someone get a car and a residual car allowance payment.

Just out of curiosity which company ? If not comfortable answering (which is cool) could you say what sector they were in ?

While it’s a long time ago, when I joined Xerox over 20 years ago our car scheme was based on a monthly allowance that you could take either as cash or car, and if you chose a car that had a lower cost than the allowance you got the difference as salary. You could also choose to spend up to 20% more than your allowance on a ‘better’ car, which then came out of your salary. That scheme was in place when I left a few years later, and joined a tech company in the Thames Valley that had a similar scheme, though you couldn’t trade up IIRC.

[PeteinSQ]

Sheepshanks said:

She appears to have swapped her car allowance for a company car. So now she pays BIK on the company car.

The car mentioned would have a total cost (buying, insuring, servicing etc) of way more than the nett value of £425/mth.

Where I work that will just mean that when she comes to swap the current car for a new one the list she is presented with will contain better cars than were on it last time. Assuming you're not doing lots of long trips it is a no brainer to swap to an EV at the earliest possible opportunity. The bik savings are massive.

[Sy1441]

dibblecorse said:

You have been exceptionally lucky then as having spend the last 20 odd years working adjacent to HR in some very large organisations I have never ever seen someone get a car and a residual car allowance payment.

Just out of curiosity which company ? If not comfortable answering (which is cool) could you say what sector they were in ?

I have but agree, it's unusual. The company I worked for that done it was in the telecoms sector.

[cheshire_cat]

Company I work for gives back unused allowance too.
(Engineering, 900 people)

[jonwm]

cheshire_cat said:

Company I work for gives back unused allowance too.
(Engineering, 900 people)

My last company did this (DHL) you had the choice of car or allowance, you could upgrade (max 10% of lease cost) which most did as it then counted as "contribution" on P11d, you could also down grade as much as you like and got the difference.

GM in the south east was on a decent grade and drove a VW polo, most would be in 3/5 series or A6 at his grade.