Car Allowance Instead of Company Car

Oliver Street

Possible new job. I want to choose my own car rather than one from the derisory company car list.  Obviously there are many variables but does anyone have any thoughts about what is a reasonable car allowance? I'm being offered £450 pcm before tax... The job is 'senior' management with national responsibility and therefore plenty of travel.

guinnessaddick

Are you paying 40% tax on the £450?
How much do you get paid per mile for using your own car? How many miles will you do?

Oliver Street

Yes

bobmunro

£450 per month seems on the low side - typical for senior management would be nearer £800 pm. Assuming 40 % tax you will net around £260 plus you will save the tax you would pay on the car benefit (and fuel benefit) which could be £500-600 pm or more depending on value of car and CO2 emmissions. So net around say £750 per month to spend on a car, tax, insurance, servicing and fuel. That would get you a decent'ish motor.

If you have your own car I'm assuming you could claim business mileage. HMRC rates are (I think still) 45p per mile up to 10,000 pa without any tax liability. With a frugal car you can make a bit on that but it depends what the company pays for business mileage.

It's really a balancing act as to which is better, but I would try to negotiate a higher car allowance if possible.

guinnessaddick

I was in a similar position and took the company car. It’s a more expensive way, however it’s no hassle. You are not stuck with a car if should you change/ loss your job. You don’t have to find the money for buying or leasing and insurance/ servicing.

bobmunro

guinnessaddick said:

I was in a similar position and took the company car. It’s a more expensive way, however it’s no hassle. You are not stuck with a car if should you change/ loss your job. You don’t have to find the money for buying or leasing and insurance/ servicing.

I have the choice but like you always take the car - we have a pretty good list as well. If it wasn't so good then I would consider the allowance.

IdleHans

bobmunro said:

£450 per month seems on the low side - typical for senior management would be nearer £800 pm. Assuming 40 % tax you will net around £260 plus you will save the tax you would pay on the car benefit (and fuel benefit) which could be £500-600 pm or more depending on value of car and CO2 emmissions. So net around say £750 per month to spend on a car, tax, insurance, servicing and fuel. That would get you a decent'ish motor.

If you have your own car I'm assuming you could claim business mileage. HMRC rates are (I think still) 45p per mile up to 10,000 pa without any tax liability. With a frugal car you can make a bit on that but it depends what the company pays for business mileage.

It's really a balancing act as to which is better, but I would try to negotiate a higher car allowance if possible.

Check your company's policy on this, but it's unlikely they'd pay you 45p a mile on top of a car allowance - more likely just the fuel rate, commonly in the region of 15p a mile. You can, however, claim an income tax deduction of 45p per mile for the first 10,000, 25p per mile after that.

I agree with bob, the allowance does seem on the low side.

Rob7Lee

450 is low, does depend what you mean by senior though, but when I last ran a company fleet (2013) Senior managers got 850, even what i'd call middle managers was 500, reps 400.

swords_alive

Is there no incentive, economically (e.g.  concession from HMRC), for an electric vehicle in these propositions?

The Prince-e-Paul

Try working for NHS. In a post that used to attract essential car user allowance of '£65' pcm until stopped around 10 years ago. Since then 45p per mile which drops to 14p per mile after 3500 in any one year. Remember we have to provide our own car! I did try a lease car at own expense for a while. Problem was when the car was in the garage I was still responsible for supplying a car. My lease car was 'off-road' 5 times in 15 months before I gave it back. 

Fumbluff

IdleHans said:

bobmunro said:

£450 per month seems on the low side - typical for senior management would be nearer £800 pm. Assuming 40 % tax you will net around £260 plus you will save the tax you would pay on the car benefit (and fuel benefit) which could be £500-600 pm or more depending on value of car and CO2 emmissions. So net around say £750 per month to spend on a car, tax, insurance, servicing and fuel. That would get you a decent'ish motor.

If you have your own car I'm assuming you could claim business mileage. HMRC rates are (I think still) 45p per mile up to 10,000 pa without any tax liability. With a frugal car you can make a bit on that but it depends what the company pays for business mileage.

It's really a balancing act as to which is better, but I would try to negotiate a higher car allowance if possible.

Check your company's policy on this, but it's unlikely they'd pay you 45p a mile on top of a car allowance - more likely just the fuel rate, commonly in the region of 15p a mile. You can, however, claim an income tax deduction of 45p per mile for the first 10,000, 25p per mile after that.

I agree with bob, the allowance does seem on the low side.

I think I’m supposed to do this these days but have never gotten around to it, is it just filling in an easily downloadable form or do you need to present gps data and a signed note from your mum that you really did make the trips for business?

Tavern

£450 does seem low

IdleHans

Fumbluff said:

IdleHans said:

bobmunro said:

£450 per month seems on the low side - typical for senior management would be nearer £800 pm. Assuming 40 % tax you will net around £260 plus you will save the tax you would pay on the car benefit (and fuel benefit) which could be £500-600 pm or more depending on value of car and CO2 emmissions. So net around say £750 per month to spend on a car, tax, insurance, servicing and fuel. That would get you a decent'ish motor.

If you have your own car I'm assuming you could claim business mileage. HMRC rates are (I think still) 45p per mile up to 10,000 pa without any tax liability. With a frugal car you can make a bit on that but it depends what the company pays for business mileage.

It's really a balancing act as to which is better, but I would try to negotiate a higher car allowance if possible.

Check your company's policy on this, but it's unlikely they'd pay you 45p a mile on top of a car allowance - more likely just the fuel rate, commonly in the region of 15p a mile. You can, however, claim an income tax deduction of 45p per mile for the first 10,000, 25p per mile after that.

I agree with bob, the allowance does seem on the low side.

I think I’m supposed to do this these days but have never gotten around to it, is it just filling in an easily downloadable form or do you need to present gps data and a signed note from your mum that you really did make the trips for business?

If you're claiming a mileage rate from your employer, the records you keep for that should do.
I've never known HMRC to ask for details of business trips, but they could do, so it's as well to have a basic business miles log.

To claim tax relief from HMRC you can fill in form P87 online (it's a doddle) and print and send it for expense claims of up to £2,500, otherwise you'll need to include the expenses on your self assessment return.

jamiebcool

I have this debate at work all the time. I'm convinced the cash allowance (should) always work out better. 

Firstly the mileage: my company pays 15.41p per mile business usage (par for the course I believe) If you opt for the cash allowance you can also claim the difference from HMRC to 45p, so 30ish pence a mile up to 10k miles, £3k lump sum at the end of the year. I find that covers tyres, servicing, insurance and a bit extra in my pocket.

You could take in to consideration the costs of filling the car up, however you have to do that cash allowance or company car, so I prefer to think about that as bonus cash. 

Secondly BIK at 40% on a company car can really sting, and you may even have to pay personal usage contributions if you want a nice motor. This obviously depends on the car you want to drive though. 

You don't pay any additional BIK on a cash allowance - only your usual tax and NI. 

I prefer to buy a good second hand motor 2-3 years old, along with a comprehensive warranty that will last the duration I want to keep it for. Then sell, rinse, repeat. The way I see it is my company are paying for the depreciation on my asset and more. Eventually it could even work out cost neutral.

Alternatively you may prefer the hassle free nature of a company car scheme and (depending on your company car policy) drive around in a Prius that'll cost you net £2-300+ quid a month. 

Lastly. £450pm allowance is enough to play with in my opinion and make it worthwhile. 

Justin20474

I went for an Mitsubishi Outlander PHEV, really low in CO which has a massive effect on BIK compared to a standard car. I had the option of an allowance but based on the amount I would be driving a focus or similar, although nothing wrong with a focus it would suit my life at the moment. I also appreciate that not all employers are as flexible on their car policy as mine is.

Daarrzzetbum

That car allowance does seem low but you will be able to claim £0.45 per mile for any business travel through your expenses and or via yearly tax return (combination of both). Suggest you try to negotiate upwards and get a clear defined company policy on mileage expenses. 

Does the the company car list include electric cars, if so your benefit in kind annual £ sum should/would be very low on some models

My preference has always been a car allowance and you always have a car at your disposal should you be moved on, with a company car you hand that back straight away. 

IdleHans

jamiebcool said:

I have this debate at work all the time. I'm convinced the cash allowance (should) always work out better. 

Firstly the mileage: my company pays 15.41p per mile business usage (par for the course I believe) If you opt for the cash allowance you can also claim the difference from HMRC to 45p, so 30ish pence a mile up to 10k miles, £3k lump sum at the end of the year. I find that covers tyres, servicing, insurance and a bit extra in my pocket.

You could take in to consideration the costs of filling the car up, however you have to do that cash allowance or company car, so I prefer to think about that as bonus cash. 

Secondly BIK at 40% on a company car can really sting, and you may even have to pay personal usage contributions if you want a nice motor. This obviously depends on the car you want to drive though. 

You don't pay any additional BIK on a cash allowance - only your usual tax and NI. 

I prefer to buy a good second hand motor 2-3 years old, along with a comprehensive warranty that will last the duration I want to keep it for. Then sell, rinse, repeat. The way I see it is my company are paying for the depreciation on my asset and more. Eventually it could even work out cost neutral.

Alternatively you may prefer the hassle free nature of a company car scheme and (depending on your company car policy) drive around in a Prius that'll cost you net £2-300+ quid a month. 

Lastly. £450pm allowance is enough to play with in my opinion and make it worthwhile. 

That's not quite right - you can claim the difference as a deduction against tax, so if you're a 40% taxpayer, the claim would be worth £1,200 to you.

Oliver Street

Thanks all for your comments.