Car allowance

[ingenieur]

Hi everybody.

Is there any employment / tax deduction benefit available for car allowances these days or is a 'car allowance' in a job description just the recruiters way of saying you'll be paid extra to cover motoring costs? I know in the past "company car" basically meant free motoring as long as you worked for the company. But that's a long time ago and I know a lot has changed since those days.

[Dimebars]

Car allowance is taxable income, but usually not pensionable

[Fastdruid]

ingenieur said:

Hi everybody.

Is there any employment / tax deduction benefit available for car allowances these days or is a 'car allowance' in a job description just the recruiters way of saying you'll be paid extra to cover motoring costs? I know in the past "company car" basically meant free motoring as long as you worked for the company. But that's a long time ago and I know a lot has changed since those days.

Short answer is no.

A Car Allowance is treated as salary for tax reasons *BUT* won't count towards pension or overtime rates.

Effectively this means if you say receive £500/month car allowance then after tax you'll have something like £390 to spend[1].

If you are recharged for business mileage then if you are not paid 45ppm (company I work for recharges at company car rates) then you can claim the tax back on the difference.

For example, if you get paid 20ppm for 10000 miles you might be able to claim (10000 * (45p - 20p) ) * 20%.

There is however a limit of £2500 before you have to go self-assessed, quite a few people at my company used to under-report because it wasn't worth the effort of the self-assessment for the sake of £100. If however you already need to go self-assessed (eg because paid over 50k and child benefit) then it can help reduce your tax there.

For both these reasons this does mean that if you don't get the 45p then you want to maximise the per mile payment. Diesel is not always better as HMRC goes off the manufacturer claimed figures and they're all bks. Many people will struggle to hit those mpg's and effectively subsidise the company. Not good. Choose your car carefully. After some careful sums I found a 2.5l petrol to actually be better than a diesel purely because the "fleet" mpg was so low it was laughably easy to hit and I'd end up with a decent 8ppm after fuel costs. Unfortunately because of the way the fleet has changed that's no longer *quite* as good but still easy to hit.





[1] The actual amount will vary depending on if you are a higher rate tax payer etc but for a "back of an envelope" calculation I use 78% which gets it into the right ball park.

[Evil.soup]

In my job, "Car allowance" was a taxable uplift due to owning and using a car being an essential part of the job. I had the option to use this allowance towards 1 of maybe 3 or 4 company cars and not have the cash allowance. Different companies will run it differently, my company has now scrapped the car allowance and company car options but increased the basic wage to include the uplift in the salary.

[alscar]

When I got a car allowance it was just added to salary as a separate line on the payslip so taxed accordingly.
The hidden benefit if you like is that from then on HR never seemed to include the extra payment in any pay rise or salary conversations.

[Countdown]

ingenieur said:

Hi everybody.

Is there any employment / tax deduction benefit available for car allowances these days or is a 'car allowance' in a job description just the recruiters way of saying you'll be paid extra to cover motoring costs? I know in the past "company car" basically meant free motoring as long as you worked for the company. But that's a long time ago and I know a lot has changed since those days.

So different places have it set up differently. In my current place it's fully taxable because you also get 45ppm.

However if your employer pays you a reduced mileage rate (e.g. 25ppm) then your payroll team should offset some of the Car allowance payment against it. Long story short - IF you dont get the full mileage allowance then what "should happen" is that

1. The car allowance is paid gross (without tax being deducted)
2. At the end of the year your total payments (car allowance and mileage) are submitted on a P11d to HMRC.
3. HMRC work out how much tax should have been paid.

[ingenieur]

yawn.. hard to find any of this very interesting, tax is so dull.. but thanks for the replies. I think it's cleared things up a bit.

[ARF8885]

I’ve just recently accepted an offer of employment where a car allowance was included. We agreed it would seen as additional base salary (as opposed to ‘an allowance’), my new employer would honour the increased pensions contributions on the higher base salary and would still pay 45p per mile.

You will find some employers will only pay the reduced mileage rate if you are in receipt of a car allowance. Not always as my example proves!

[Sheepshanks]

ingenieur said:

I know in the past "company car" basically meant free motoring as long as you worked for the company. But that's a long time ago and I know a lot has changed since those days.

Company car can still be close to free - as long as it’s an EV.

ICE company car tax, especially on anything decent, has become pretty horrendous.

[martinbiz]

ARF8885 said:

I’ve just recently accepted an offer of employment where a car allowance was included. We agreed it would seen as additional base salary (as opposed to ‘an allowance’), my new employer would honour the increased pensions contributions on the higher base salary and would still pay 45p per mile.

You will find some employers will only pay the reduced mileage rate if you are in receipt of a car allowance. Not always as my example proves!

It's not really a car allowance then, just extra pay. A car allowance is normally required to be shown as a separate line on your payslip as it's not included for pension calculations and also increases which are often different to salary. My car allowance over the last 10 years when I was working full time increased considerably more in percentage terms than my salary did. But a win for you in the long run.