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I've been offered a new job that comes with a car allowance (£5k) as part of the package.

I've never had a car allowance as part of any previous jobs, and want to work out what my options are...?

1. Take the allowance as cash (but I'll be paying 40% income tax on it)
2. Take a car

Can someone explain to me (in noddy terms!), what the pros & cons are of my options...? e.g. tax implications etc...

Cheers,
winkie

Car allowance - just like normal salary, you'll receive it as gross income and be taxed on it.

Company car - depending on the car you choose, you'll be assessed on a benefit in kind based on the list price of the car and it's CO2 emissions.  If you get private fuel paid for you, you'll be assessed separately for that based on the CO2 emissions.  The highest emission cars are assessed at 35% of their list price.  Most normal company cars will be around the 18-20% mark.  Some, such as the new BMW Efficient Dynamics models are more like 13%.

You'll basically get a tax code which ensures that tax is deducted as if you've earned the benefit in kind values in cash, so you'll see a much bigger tax deduction on your payslip.  However, you won't be paying for the lease of the car, tax, insurance, servicing, possibly fuel too.

Pros/cons are very much down to individual circumstances and depends on how many private miles you'd be driving (if you get fuel paid for there's a break-even point of personal miles you need to drive for the fuel benefit to be worthwhile).  As a general rule, if you're doing loads of business miles and few personal miles, the cash allowance might be best.  If it's a perk car and most of your mileage is private, then having the car + fuel option might make more sense.  If it's a close call, then bear in mind that a company car is generally less hassle compared to owning your own car, but it's a personal choice.

Any car magazine will give you the list price and taxable benefit % in their basic stats and there's loads of benefit calculators available on the interweb so you just need to plug in some numbers on vehicles you'd be interested in.

Pretty thin.

Thanks Sheriff...

I've also been offered a fuel card that covers both business & private mileage. The job is mostly office based and therefore I won't be doing much business mileage, probably less than 2k miles per year. My commute to the office would be c.90 miles a day (which counts as private mileage...?), which by my calculation is about 21.5k miles a year.

In terms of tax code, does that mean my code would be reduced by the value of the car allowance? And therefore reduce my tax free allowance?

If it's a decent car you'll could potentially end up with a 'K' code.

At the moment your code is probably something like 810L which means you can earn £8100 without paying any tax.

If it changes to a K code you get no tax free money at all and if for example it's K500 you pay tax on £5000 more than you actually earn.

So to swing from 810L to K500 means you pay tax on £13000 ish which at 40% (£5200) is pretty harsh just for getting a car. However it would probably cost you more than that to run a decent car for a year so it's not too bad.

Obviously the amount it swings depends on the taxable value of the car and also any other perks you have which are considered benefits.

Basically they put a value on the car and say that you've effectively earned that much in the year.

If you take the allowance do the company insist on a certain standard of car? If you could take the £5k, lose 40% (£2k) of it and run a car for £3k a year then you're effectively getting a free car. You won't get anything good for this though so you'd have to put some towards it if the company insists you get something good.

I don't know the full ins and outs of it all, but I have a couple of friends that get the cash and buy their own cars on finance with it. After the car has been paid they are left with an asset too so make a bit that way as well.

This thing shows you the tax you'll pay: http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

I did a quick calc for a £30k car with 180 emissions with the company paying for private fuel and it was a benefit of 8k for the car and 5k for the fuel.

40% of that means it's going to cost £5200 a year for a decent car with the company paying for all your fuel.

Not bad really.

Take the car not the cash

Meet 100's of user chooses a year

Quick response but got work

Regards

M

These days the thinly veiled comment is when you say you'll be paying 1% tax on it (Jimmy Carr innit)

I know some people can do all sorts of maths to show you should take the cash but its just a hassle.

It's nice to know that you never have to worry about;
Getting a new car every couple of years.
Insurance premiums.
Road tax.
Petrol prices.
Servicing and maintenance.

And those sad times when a car park crashes into you  :dontask:

Pros of taking car:

No surprise bills for maintenance
New car every 2-4 years
Relativly hassle free if you have some major issue

Cons:

Tax will likely more than tax on cash
May be limitations on what car you can have
Move job and you potentially have no car for a period

Really depends on your car choice as to which is more economic. But may be worth taking the car to save on hassle.

You have to do a boat load of private miles for fuel benefit to be worthwhile but may be worth having if you are doing c1k miles per week on a commute.

This.

Even things like getting new tyres can add up on the cost of running your own car, and you don't have to worry about buying a new/used car, the depreciation, hassle, etc., and they're all significant factors even before you look at the money in detail.

Cash ainec especially with a fuel card if you are doing no private mileage.

Alternatively ask your employer to look into leasing cars to employees through salary sacrifice and everyones a winner.  Company saves on ER NI and employees get to lease cars less tax/NI at business rates.

If that were me I'd be snap taking the car.

For info, your daily commute counts as private miles, not business, as you'd guessed.

Also, you don't lose your tax free allowance, but you'll pay more in tax each month as its getting utilised more quickly.

If you end up on a K code, which is likely, this basically says that your benefits in kind are higher than the allowance, and adjusts your monthly tax payment so that you don't end up with a massive shortfall to pay at the end of the tax year.

Not sure if its correct but i was told you need to knock out 10,000 miles a year on a fuel card to make it cost effective.

I love the company car, hassle free motoring is a joy.

It depends entirely on the car you're driving, as it's a function of the list price and emissions, as well as the fuel consumption.

It does protect you to an extent from rising fuel prices though, as the fuel element of the BIK can only change once each year, and didnt change for many years when first brought in.

Thanks for all the replies...

For a £5k car allowance, what type of car could I get? Would it stretch to a BMW 320d Efficient Dynamics; decent car with low CO2 emissions? What other alternatives would people recommend?

If that's the car you're going for don't use a car allowance.  It's one of the most company car friendly vehicles out there.  My 520ed was 13% BIK before I changed jobs.

£5k allowance after tax = £3kpa = £250 per month so check the leasing deals but I doubt you'll get a 3 series, particularly as you're going to be > 20k miles per year.

Have a look on here:
http://www.buyyourcar.co.uk/lease/cars/search/cars/bmw/options/pricemax/250/pricemin/200

Looks like the 1-series would fall into that price bracket, but it's worth contacting a few of the brokers on there to see what they can offer within your budget. The deals on there are usually for 10,000 miles per annum, so you'd need to get quotes for your exact requirements.

The best situation to be in is having a budget but not being set on a particular model, as you'll then be flexible to look at what the best offers are for your money.

(disclaimer: I help with the online marketing for that site, but I'm not affiliated to any of the brokers who are advertising on there).

Bear in mind in addition to the £250 per month net Car Allowance you are also saving around £100-£150 per month in company car tax so arguable you have £400 per month towards your own car.

A few words of warning.

Your £250 a month is that to include servicing/maintenance/repair? Some companies will tell you it has to include a maintenance package. For your miles I'd want maintenance on your car or you're forking out for services, maintenance and tyres. Check what the package covers as well. Some companies wont include tyres, some will include limited tyres and one or two will be unlimited (ie if you get a puncture the day after changing your tyres this will also be covered).

Secondly check the payment profile. Some will charge you 3 payments up front followed by 33 payments (terminal pause). Some will charge you 3 up front followed by 35 (spread). This then means you're making 38 payments and whilst it may appear cheaper it'll mean the whole life cost will be higher and it may not necessarily then fit into your £5k per year allowance. Some brokers will charge you 6 up front which will appear even cheaper but again will probably make it more expensive in the long run.

Beware of some brokers. They will "no sell" you a maintenance package which for over 20k per year I would want. Also a lot have sign up fees or admin fees. After sales service can be pretty bad too.

Realistically you wont get a 3 series (or even a 1 series) for your budget but there are some good sub 100g/km cars out there which will keep your BIK down.

I get £5k allowance too and I looked at the above and the CL220 merc. Test driving it this weekend. Awesum car! Test drive the BM in 2 weeks.

That said neither car is under the £5k so I will have to payout from wage.

BM is better std options, better co2 and cheaper by £12 per month with the rates we get charged.

But the merc is well a merc, always wanted one.

Any car under co2 of 120 tax is good.

Company car over cash for me everytime. Peaceful driving. Massive benefits to having one.

Tax, insurance, maintaince, mot, tyres, windows, breakdown.

New 1 every 3 years.