Car Allowance or Cash...?

[winkie]

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

[Sheriff Fatman]

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.

[EvilPie]

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

Pretty thin.

[winkie]

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?

[EvilPie]

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.

[Woodsey]

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.

[EvilPie]

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.

[MPOWER]

Take the car not the cash

Meet 100's of user chooses a year

Quick response but got work

Regards

M

[DaveShoelace]

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

Pretty thin.

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

[StuartHopkin]

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 

[SirPerceval]

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

[BulldozerD]

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.

[kinboshi]

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 

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.

[roscopiko]

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.

[Sheriff Fatman]

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 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.