whats the difference between a company car & a car allowance
Discussion
alancovkid said:
Simple question.
what's the difference between a company car and a car allowance?
tax costs etc?
thanks
Eric will be able to answer this fully (and correctly). what's the difference between a company car and a car allowance?
tax costs etc?
thanks
My understanding is that with a company car, it is yours to use exclusively and it's provided by the company. However you will pay something like 33% of its new vaue as a taxable benefit every year.
A car allowance is where you provide the car and you're given a cash allowance per mile based on its depreciation.
Car allowance - forms part of your (usually non-pensionable) salary so subject to tax and NI
Allowance of £500 = somewhere between £250 and £400 'in your pocket' each month depending on your income tax band. Check that the additional pay doesn't push you into a higher tax band if you are near a threshold (i.e. earning around £40k-44k salary).
Note that some companies have restrictive policies associated with taking the allowance i.e. if you take the cash you must have a car that's less than 5 years old, something that appears 'professional' to customers etc. You might be expected to insure it for business use. In my experience such policies aren't always enforced if they do exist, particularly if you have a slightly older but reliable car.
Some companies will let you claim 45p per mile using your own car but a lot only pay the 'fuel only' rate (about 13p but it varies) because they are paying you the car allowance. In the latter scenario you can claim the difference in tax relief each year on a P87 form.
http://www.hmrc.gov.uk/rates/travel.htm
Car - 'free' car with free insurance and maintenance but you pay income tax based on the car on it because it is a benefit. The income tax you will actually pay varies from car to car as it is based on the list price (ignoring discounts) and CO2 rating. Some cars are in a very low CO2 band and may only cost you £50-100 a month in extra tax. Note that if you load the car up with options it increases your list price and consequently your tax bill. For this reason, "special edition" cars are usually worth looking into because you get optional extras thrown in very cheap or for free. As an example, BMW recently did a E92 (3 series coupe) Sport Plus edition with 19" wheels, nav etc. Not that a £34000 car is cheap on the tax in the first place, even in 320d form, but every penny helps as they say.
See here and play about with different cars to see what I mean: http://comcar.co.uk/newcar/companycar/taxcalc/g1se...
You normally only claim the 'fuel only' rate for mileage with a company car (the 13p I mentioned above) as the running costs are being funded for you.
ETA: It's not 13p any more, see tables here http://www.hmrc.gov.uk/cars/advisory_fuel_current....
Allowance of £500 = somewhere between £250 and £400 'in your pocket' each month depending on your income tax band. Check that the additional pay doesn't push you into a higher tax band if you are near a threshold (i.e. earning around £40k-44k salary).
Note that some companies have restrictive policies associated with taking the allowance i.e. if you take the cash you must have a car that's less than 5 years old, something that appears 'professional' to customers etc. You might be expected to insure it for business use. In my experience such policies aren't always enforced if they do exist, particularly if you have a slightly older but reliable car.
Some companies will let you claim 45p per mile using your own car but a lot only pay the 'fuel only' rate (about 13p but it varies) because they are paying you the car allowance. In the latter scenario you can claim the difference in tax relief each year on a P87 form.
http://www.hmrc.gov.uk/rates/travel.htm
Car - 'free' car with free insurance and maintenance but you pay income tax based on the car on it because it is a benefit. The income tax you will actually pay varies from car to car as it is based on the list price (ignoring discounts) and CO2 rating. Some cars are in a very low CO2 band and may only cost you £50-100 a month in extra tax. Note that if you load the car up with options it increases your list price and consequently your tax bill. For this reason, "special edition" cars are usually worth looking into because you get optional extras thrown in very cheap or for free. As an example, BMW recently did a E92 (3 series coupe) Sport Plus edition with 19" wheels, nav etc. Not that a £34000 car is cheap on the tax in the first place, even in 320d form, but every penny helps as they say.
See here and play about with different cars to see what I mean: http://comcar.co.uk/newcar/companycar/taxcalc/g1se...
You normally only claim the 'fuel only' rate for mileage with a company car (the 13p I mentioned above) as the running costs are being funded for you.
ETA: It's not 13p any more, see tables here http://www.hmrc.gov.uk/cars/advisory_fuel_current....
Edited by texasjohn on Monday 19th August 22:39
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