Car Allowance and Tax

[Chrisgr31]

I will shortly be starting a job where instead of getting a company car I can opt for an additional monthly sum instead. If I opt for the latter I will get the Inland Revenue approved sum for mileage which appears to be 14p a mile for a 2 litre diesel.

If they are paying me £5,000pa car allowance I will presumably get taxed on rate at my top tax rate? So should I therefore retain a copy of the mileage log and all the costs of servicing, fuel, tyres, insurance etc? Can I claim back any of those costs if the business sahre is more than the amount I am left with after tax? Also what about interest on the car loan or depreciation?

[Eric Mc]

Are you getting a company car or are you getting an increased salary to compensate for NOT having a company car?

[Chrisgr31]

Eric Mc said:

Are you getting a company car or are you getting an increased salary to compensate for NOT having a company car?

Sorry for the confusion.

I am getting an increased salary, although doesn;t count for pension!, instead of a company car.

[caiss4]

Chrisgr31 said:

I will shortly be starting a job where instead of getting a company car I can opt for an additional monthly sum instead. If I opt for the latter I will get the Inland Revenue approved sum for mileage which appears to be 14p a mile for a 2 litre diesel.

If they are paying me £5,000pa car allowance I will presumably get taxed on rate at my top tax rate?

Correct if your salary takes you in to the 40% band then the £5k will be taxed at 40%.

Chrisgr31 said:

So should I therefore retain a copy of the mileage log and all the costs of servicing, fuel, tyres, insurance etc? Can I claim back any of those costs if the business sahre is more than the amount I am left with after tax? Also what about interest on the car loan or depreciation?

You should log all your business miles and, obviously, claim the fuel cost back from your company at 14p/mile. When you come to do your annual tax return you then claim the difference between 14p and 40p (26p) as an offset against your total tax bill. That is you can claim back 40% of 26p per mile travelled on business up to 10k miles per year. After 10k the rate drops to 25p per mile so it becomes 40% of 11p per mile. You can't claim actual repair/servicing costs against tax. The principle is that the car allowance should cover these costs for a standard car.

[Chrisgr31]

So the big disadvantage is that at present I don't fill in a tax return as I don't want to play that game, and its not really worth it. Under this scheme it will become worthwhile!

Ah well.

[caiss4]

Chrisgr31 said:

So the big disadvantage is that at present I don't fill in a tax return as I don't want to play that game, and its not really worth it. Under this scheme it will become worthwhile!

Ah well.

Afraid so. It is a real incentive to do a tax return although I must say on line it is quick and easy providing you have all the data to hand. You will need to watch out, however, that after a year or two HMRC might roll your business mileage rebate in to your annual tax code (happened to me). This is OK providing you're going to be doing a fairly constant business mileage every year as you don't need to wait to the end of the tax year to get your money back BUT if you suddenly stop doing business mileage and don't request an amended tax code you could end up owing a wedge of tax at the end of the year.

[smartie]

caiss4 said:

Chrisgr31 said:

So the big disadvantage is that at present I don't fill in a tax return as I don't want to play that game, and its not really worth it. Under this scheme it will become worthwhile!

Ah well.

Afraid so. It is a real incentive to do a tax return although I must say on line it is quick and easy providing you have all the data to hand. You will need to watch out, however, that after a year or two HMRC might roll your business mileage rebate in to your annual tax code (happened to me). This is OK providing you're going to be doing a fairly constant business mileage every year as you don't need to wait to the end of the tax year to get your money back BUT if you suddenly stop doing business mileage and don't request an amended tax code you could end up owing a wedge of tax at the end of the year.

Theres a box to tick on your return to tell them not to do this, thought tbh they often do it anyway. If you phone them they will ammend your code back though.

[Chrisgr31]

Thanks for the responses everyone.