Company car costs

[MrLou]

I'm starting a new job next month that comes with the option of a company car.

The annual allowance is £6.8k or I can take the equivalent cash, I'm a higher rate taxpayer.

This is the first time I've had the option of a car and been in a position where I'm actually tempted to take it, but I'm unsure of exactly how much it will cost me or put another way the net difference between taking the cash or the car.

I've looked at numerous 'cash or car' calculators and as I see it here's how it'll work.

If I take the car:

• I give up £6.8k of salary
• I pay tax on the benefit in kind

If I take the cash:

• I pay income tax on the allowance

So to give an example if I choose something like an E Class Estate, 177g of CO2 list price around 40k, I'll have a taxable benefit of around £10k p/a so will pay around £350 a month to have the car.

If I take the cash I'll pay 40% tax on it, and will end up with around £300 a month in my pocket.

Net difference between taking the car or not around £600.

Have I got this right?

Are there any other things I should be taking into account?

Thanks

[anonymous-user]

You can claim the IR milage rate of your tax, depends on the business miles, but my calculations always show it is better to take the monwy and buy a 3 year old car, there is/was a booklet 'using your car for your employers business',
How will you be paid for petrol used on business?
I would always take the money buy a 3 year old car and you own the thing, I was made redundent 25 years ago no big problem as I had a job in two hours, but had to return the compoany car and buy a car that night, last time I ever took the car

[5lab]

you might find the company requires that if you do take the money you run a car that fits certain criteria anyway (ie 4 door, 4 seat, no more than 3 years old, no more than 60,000 miles, or something).

you've got it about right though. might find a petrol or hybrid (thinking the gs 450 h - 350bhp) is cheaper enough on the tax to be worthwhile.

[thinfourth2]

5lab said:

you might find the company requires that if you do take the money you run a car that fits certain criteria anyway (ie 4 door, 4 seat, no more than 3 years old, no more than 60,000 miles, or something).

i have always wondered how the hell can they tell you what car you must own. How would they enforce it?

What happens if you do buy a 4 wheeled domestic appliance that fits their rules but you also own a 2 door fun car can they fire you for driving it?

[CraigyMc]

thinfourth2 said:

5lab said:

you might find the company requires that if you do take the money you run a car that fits certain criteria anyway (ie 4 door, 4 seat, no more than 3 years old, no more than 60,000 miles, or something).

i have always wondered how the hell can they tell you what car you must own. How would they enforce it?

What happens if you do buy a 4 wheeled domestic appliance that fits their rules but you also own a 2 door fun car can they fire you for driving it?

The company I work for gives the same car-or-cash options but if you wanted you could run an ultima or a caterham as the private car when taking the cash. They don't care what it is, as long as it is available for company travel.

I've had a company car (the TT in my profile) for quite a while, but I'm dropping out of the scheme at the end of this lease. Reasons are cost (by now I could have actually bought the car in cash), the way the leasing company deals with things like tyres (we will fit whatever we jollywell like sir, and to hell with having the same construction on each end of the axle), and general hassles with minor things like dings to wheels (I'd just use chipsaway, and it would take probably one or two calls, whereas the leasing company make it an insurance claim, meaning trips to the repair estimators, audi, and then eventually probably the same small company to actually have the work done).

Mileage rates are a bit of a bugbear for me. I did some maths the other day and worked out that with petrol at 1.21 per litre, I have to hit 37mpg average in order not to lose out. The TT averages 33, driven normally.

The main thing I'm fed up with is lock-in. I'd never keep the same car for 2/3/4 years if left to my own devices - I just get bored.

C

[MrLou]

Berw said:

You can claim the IR milage rate of your tax, depends on the business miles, but my calculations always show it is better to take the monwy and buy a 3 year old car, there is/was a booklet 'using your car for your employers business',
How will you be paid for petrol used on business?
I would always take the money buy a 3 year old car and you own the thing, I was made redundent 25 years ago no big problem as I had a job in two hours, but had to return the company car and buy a car that night, last time I ever took the car

I'm not sure what the rules are on reclaiming business miles, I accepted the job yesterday and due to my contract with current employer have to wait until mid-September before I can start, so I won't get much more info for a few weeks. I assume there might also be a list of cars from which I can choose, if there's nothing on the list I like the decision becomes very easy.

I think I'll end up taking the cash and banking it as my current car is adequate. If I get the need/urge to change I might put the money towards a used car but the prospect of driving a brand new car is tempting, I'll just have to try and avoid temptation for a while!

[anonymous-user]

Mr Lou, been a long time since I worked in the UK, but I've just updated my spread sheet that I used to calculate the tax postion if you have a car or take the money and claim the milage, all you need to input is the Salary, Tax Value of the Car, Milage, Car Allowance and Petrol Allowance figure. If you PM me with an email address I'll send you a copy of the sheet for 2010/11.
My last company insisted on a 4 door car less the 5 years old, and asked to see reg and card and Insurance.
I just run some figures nased on Salary 80,000, Compnay Car Tax Value 10,000, Annual Milage 15,000, Petrol for Buisness 10p per mile, and Car allowance of 6,600 all PA.
Net cash after tax with the car 54,070, Net cash with the Allowances 66,470.
So you get 12,00 pound to run your car, (and pay buisness petrol).
I always found you could run the equivelent car for that and own it, but as I say I always had a 3 year old one and kept some cash.
Sorry can't past a spreed sheet here, it is asimple spreed sheet ignores NHI and the claw back of the PA over 100k.

[anonymous-user]

Here is a really really bad photo of the spread sheet, san't upload the sheet or even agood scanned copy, but if you look at it you can run the figure

[sjg]

I get a similar allowance then 20p/mile.

It doesn't go very far really, especially now most of the cheap lease/PCP deals dried up. To give some perspective though, it does entirely cover the costs of my diesel Civic (bought as a 6-month-old ex-demo - I'll keep it till 5 years old at least), including about 6k/year private mileage (on top of about 12k business), depreciation, insurance (steep as it's parked on the street in London), servicing, tyres, etc. Then some left over which pays some of the running costs of my bike.

Restrictions are common but companies vary in what they apply and how heavily they enforce it. Usually if you're seeing customers you're expected to be in something newish, and employers have H&S responsibilities so by keeping people in more recent cars means more safety features, less chance of losing employees after accidents, etc. They can put whatever restrictions on that they like, they don't have a requirement to pay you a car allowance.

One advantage of company cars (and the reason many firms are keen to get people out of them) is that responsibility for the car is tied to the job. You leave, you get made redundant - it's their problem, not yours. There are plenty of people about who had high-flying jobs, big car allowance but were let go and now they're saddled with the £500+/month payments wheras company car drivers just gave the keys back on their last day.

[softtop]

Berw said:

Here is a really really bad photo of the spread sheet, san't upload the sheet or even agood scanned copy, but if you look at it you can run the figure

is the reference data correct? The right hand column shows -5,000 for the 5k miles, this should be £1,000

[wezo]

Another consideration is can you take a cheaper and lower CO2 car and take the remainder as an increase in salary, thats what I am able to do with my firm's company car scheme and it works out quite well fro me.

[softtop]

The factor that needs to also be considered is what you will pay to have what you want over and above the actual car calculations. Given the choice between a new mondeo (standard black cloth seats) or a second hand full cream leather Mercedes E class, I can put my own value on that.

[MrLou]

Berw said:

If you PM me with an email address I'll send you a copy of the sheet for 2010/11.

Very kind, you should have my details.

[MrLou]

softtop said:

The factor that needs to also be considered is what you will pay to have what you want over and above the actual car calculations. Given the choice between a new mondeo (standard black cloth seats) or a second hand full cream leather Mercedes E class, I can put my own value on that.

Yes, the idea of using the monthly cash to fund the private purchase of a used car seems better value for money. Insurance isn't a big concern for me, I'm old enough and have a clean enough record that it won't be too high. I do like the idea of fully maintained, the cost of running a 3 or 4 year old Mercedes won't be insignificant.

Until I start I won't have an idea of what I can choose so it might be that there are some good options, but the cash seems the best choice for now.

Thanks for all replies.

[MrLou]

I've a bit more information on the scheme now, I can choose from a fairly narrow range of cars from BMW and Volkswagen Group, as the entitlement is related to the pay grade.

I've run the sums through Kelvin's spreadsheet (Many Thanks!) and, in my case it works out that for between 5-10k business miles, for a car with a BIK of around 4.5k (Skodia Octavia VRS estate for example), I'll get around £7k more in my pocket if I take the cash.

I could buy and pay for a 2 y/o version of the same car quite easily with that kind of money, proving the fact that the cash is the best choice for me.

With Kelvin's permission I'll publish the spreadsheet on Google Docs so others can run their own calculations.

Cheers,

Lou

[sjg]

Cash does seem to win in most cases these days - unless you're willing to go for something with super-low CO2 (like a Prius or VW Bluemotion) and use the savings in tax to fund something else fun.

[MrLou]

sjg said:

Cash does seem to win in most cases these days - unless you're willing to go for something with super-low CO2 (like a Prius or VW Bluemotion) and use the savings in tax to fund something else fun.

But even if you take a low CO2 car, you still have to give up a sizable chunk of cash from your gross pay.

In my case a Prius makes me around £1000 better off compared to, say, an Octavia Estate, I know which would be better for my situation (I don't go to London so the C Charge is irrelevant to me) and which I would rather drive.

In the choice of cash or Prius I'd take home nearly 7k extra a year by choosing the cash and that's with only 5k business miles, if it were more the cash option becomes more attractive.

It seems that company cars are really not that attractive any more, which would explain why my new firm has a load of cars still under lease but with no-one wanting to take them!

Edited by MrLou on Tuesday 10th August 15:43

[MrLou]

With kind thanks to Kelvin (Berw) here's a link to the spreadsheet, published on Google docs.

It might have errors, feel free to correct them, no warranty etc etc.

[CraigyMc]

MrLou said:

It seems that company cars are really not that attractive any more, which would explain why my new firm has a load of cars still under lease but with no-one wanting to take them!

It might help if the leasing companies that administer company car schemes actually made looking after the vehicles easier than doing it by yourself, but they actually just add cost and beurocracy in my opinion.

Put another way, if the same car cost exactly the same as a company car or privately, I'd plump for private every time, knowing what I know now.

In fact, I'd do that even if it cost more, which it doesn't.

C

[softtop]

MrLou said:

With kind thanks to Kelvin (Berw) here's a link to the spreadsheet, published on Google docs.

It might have errors, feel free to correct them, no warranty etc etc.

one mistake is that the allowance is 25p and not 20p as stated for over 10k miles