[m1bjr]

So three years and almost 75k along, the 318dES E90 is due for a change of owner.

It's been 100% reliable, and long term combined average consumption sits just under 60mpg over the last year.
Not bad - a little boring and underspec this one - but no complaints really.

My employer is offering £450pcm if I take another fully expenses company vehicle.
Or they will give me £550pcm if I opt out and take an allowance to buy my own.

There is still the option to 'top up' the company car rate, but a caveat now exists where I would be liable for the remaining difference
if I leave this employ before the company car lease is up.
A new lease is a stagering 100k/4years only for me now.
A long time to be in the same car.

So, never having 'opted out' before, how complex does it get with tax?
I mean right now its simple, P11d and tell the tax man and its sorted with no tax returns or any other nonsense to bother with.
How does it work if I take the allowance?

And given the measily £100pcm difference, is it actually worth the risk/hassle?

In both cases I pay diesel and claim back at flat rate of 17ppm currently for a 2.0l diesel (a little over guideline for a specific reason)

Opinions from those with experience are most welcome!

Steve

[Robin330i]

Aren't you from s2ki?

[325_bucks]

As far as I know with all the allowances I've ever had, it gets paid to you and taxed at the same rate as salary, so it's effectively an extension of your salary. I've never had to declare it or do tax returns for it or anything like that

[Hotcoupe]

The car allowance would be viewed by HMRC in simplistic terms as a pay increase.

So for arguments sake if your salary is £35,000, the car allowance of £6,600 would bring your overall salary package up to £41,600.

So dependent on your real salary +£6,600,your tax liability on the whole package will depend on whether the total is below the higher limit of tax or above.

Income Tax
If memory serves the basic rate threshold is £0 - £32,011
Higher rate threshold is £32,011 - £150,000

So hypothetically,the illustration of your overall package @£41,600,would mean that £9,589.00 would be taxed at 40%,so of that £9,589.00,£6,600 is your car allowance,this makes the car allowance worth £3,960.00 nett per year, or £330.00 pcm nett.

Fuel - HMRC allowances are 45p per mile for the first 10k,25p per mile for any mileage above 10k.

So if you are only going to receive 17p per mile,you claim back from the HMRC, 28p per mile for miles travelled under 10K, and 8p per mile for miles travelled over 10k.

In a nutshell,you have £330.00 pcm to fund the purchase,tax,insure and service the car.
You also have to factor in any other miscellaneous items,and VERY importantly, depreciation.

You will also get the fuel allowance back from the company + be able to claim back a payment from the Taxman for the discrepancy between what the company pays (17ppm) and the HMRC approved mileage rates.

Simples

How many mls per year do you do?

[m1bjr]

Originally Posted by Hotcoupe

The car allowance would be viewed by HMRC in simplistic terms as a pay increase.

So for arguments sake if your salary is £35,000, the car allowance of £6,600 would bring your overall salary package up to £41,600.

So dependent on your real salary +£6,600,your tax liability on the whole package will depend on whether the total is below the higher limit of tax or above.

Income Tax
If memory serves the basic rate threshold is £0 - £32,011
Higher rate threshold is £32,011 - £150,000

So hypothetically,the illustration of your overall package @£41,600,would mean that £9,589.00 would be taxed at 40%,so of that £9,589.00,£6,600 is your car allowance,this makes the car allowance worth £3,960.00 nett per year, or £330.00 pcm nett.

Fuel - HMRC allowances are 45p per mile for the first 10k,25p per mile for any mileage above 10k.

So if you are only going to receive 17p per mile,you claim back from the HMRC, 28p per mile for miles travelled under 10K, and 8p per mile for miles travelled over 10k.

In a nutshell,you have £330.00 pcm to fund the purchase,tax,insure and service the car.
You also have to factor in any other miscellaneous items,and VERY importantly, depreciation.

You will also get the fuel allowance back from the company + be able to claim back a payment from the Taxman for the discrepancy between what the company pays (17ppm) and the HMRC approved mileage rates.

Simples

How many mls per year do you do?

Wow,
a concise answer and very quickly.
Thanks for taking so much time mate.

I am doing 25k per year. I rarely use it for private as I have other toys.
Opting out looks nonsense doesn't it?

The idea was to go used/cheap and bank some cash this time, knowing I can change my mind.
I thought upper tax limit was over £42k though, your numbers dont allow for the tax allowance?

[AlanQS]

One important bit has been missed out. Paying benefit in kind just now is collected through the tax code by reducing your tax free allowance - often reducing it to a minus figure which means in turn that - unless you are under £38k or so, you are paying higher tax rate on a greater portion of your salary to the tune of at least an extra £1,000 in tax.

However, rather than go through the long but straightforward permutations, it has long been thought by a lot of people that a company car is the only choice if you put a lot of miles on your car - and you do. Buying something cheap and taking the cash is a reasonable idea - if the cheap car can survive the mileage you put on it.

Buying something that you would really like and using the car allowance to help fund it would be a bad idea as your mileage will destroy it's value and you will be financially worse off.

In your shoes, with your annual work mileage, take the company car.

But... if you would like to buy a car that is a little beyond your reach, and to hell with any other considerations, taking the car allowance would bring that car into reach - but since you don't use the car privately as it is, there would seem little point in that.

[texasjohn]

I just don't like being stuck in the same car for three years. If you make a bad choice you have to live with it. My last company car was a C250CDI Sport; the auto gearbox was terrible, it was very noisy and the ride was really hard even on 17s with non RFT. With hindsight I should have paid a bit more tax and gone for a E90 330d SE.

I subscribe to AlanQS's final comments in his post above as I've opted out now and I bought a 335i. I get a fuel card although I get quite good MPG as most of my driving is longer motorway runs (and it's probably a good 30% better on fuel than an M3 would be). Yes, it's costing me more than a 320d company car would have but I am not running a 'second car' as my wife doesn't drive so there is no need for two cars, a saving there.

If I consider the cost comparison of 335i as a company car vs 335i as a private car then it's cheaper to run it privately. 35% BIK tax on a P11D value of £48800 plus the fuel card benefit tax on top of that would be c. £850 a month.

I reckon it's costing me less than that but I won't know fully 'til I sell the car and can work out the total cost including depreciation.

[davyk31]

Hotcoupes calcs have not allowed for the personal allowance. Using his figures there ought to be no liability at 40%. Depending on your salary this can make a massive difference to the calcs.

[doughboy]

Steve,

I know that choice, its a tough one as with those miles you will likely end up with a pov spec car, but with a ridiculous BIK charge based on silly list prices that no one ever pays.

I looked at it logically and took it to the extreme. Bought a Peugeot bipper Pro Van (the tiny 900kg ones) instead of a car for work. I do 30k a year now, customers comment on how smart it looks and they says its nice to see spending carefully.

Small, light, LOADS of fun to drive (the most fun you'll ever have with 75bhp). Brilliantly adjustable on the limit and lift off rear steering to die for. great brakes ( better than my 335i easily) 1250 diesel, really useful vehicle too. Bluetooth, aircon, USB connectivity, decent hifi, multi adjustable seats and armrest, lleccy windows & heated mirrors etc...

very Cheap (circa £100/m to lease unlimited mileage or £8k to buy new)

And most importantly No BIK , as I state no personal use, but even if you decare commuting there is only a small BIK.

Now we don't know how we ever lived without it!

And being a white van, everyone lets you out at junctions, and you can drive it like you stole it and and no one even bats an eyelid...

[Hotcoupe]

Originally Posted by m1bjr

Opting out looks nonsense doesn't it?

Only you can answer that first question,based on the figures,it doesn't make sense,no.

Originally Posted by AlanQS

But... if you would like to buy a car that is a little beyond your reach, and to hell with any other considerations, taking the car allowance would bring that car into reach - but since you don't use the car privately as it is, there would seem little point in that.

Very much this for me.
I had a car allowance for many years,the cars I bought were all high powered BMW's,the allowance + the full HMRC approved mileage rates went a long way to fund the cars,but if I took the blinkers off,it probably never mades sense financially.
However,subsidising the CA + MR's put me in cars that I wanted,and was not based on a sound accountant's line of thinking.
I didn't care

Originally Posted by davyk31

Hotcoupes calcs have not allowed for the personal allowance. Using his figures there ought to be no liability at 40%. Depending on your salary this can make a massive difference to the calcs.

Davy's right here,and it was late when I wrote the post.

Personal allowance for this financial year (April forwards) is £8.105, so on my hypothetical scenario there would not be a discussion of the higher rate of tax.

So on reflection,go with the car allowance,and on Monday pop into your local Porsche dealership

[doughboy]

Company cars always look good due to the no insurance/no tax/no servicing/no hassle etc.

But if you take the allowance, think of it as just extra wages (like HMRC do) then use it to get something you like, it could be agood thing.

[sohlman]

I run my own company. Have no car allowance and just charge the company for my mileage. I claim back around 5k per year and this just about funds my car.

I buy normally a 4-6 year old BMW. Currently a e90 330i petrol which had 19k on clock an was bought for £8995. I do around 12-15k per year. It has a personalised plate and after 1 year has cost me nearly nothing to run. Just fuel and a service. Next year should cost just fuel.

If you buy second hand carefully you can get a car that's just about new in condition, but not have depreciation to worry about.

[SteveC]

Originally Posted by davyk31

Hotcoupes calcs have not allowed for the personal allowance. Using his figures there ought to be no liability at 40%. Depending on your salary this can make a massive difference to the calcs.

Actually he has allowed for the the personal allowance

For 2013, personal allowance is £8105 and the 40% limit is at £34370 i.e£8105 @ 0% and £26265 @ 20%). For 2014 the figures are £9440 and £32010

All the calculations above skip the fact that the OP pays substantial benefit in kind tax on his current company car, which has to be considered when comparing opt-in with opt-out.

'Free fuel' can be a very expensive option in the UK if personal mileage is low . Employer provided fuel for a car emitting 200g of CO2 costs a 40% taxpayer ca. £2,700 in tax annually. If you only drive say 7000 private miles at 30mpg, you'd use ca. £1365 worth a fuel. With a company fuel card your effective tax rate would be 198%

When I came back to the UK 10 years ago, I could scarcely believe the devious spider's web of taxes that Gordon Brown had woven around company cars.
Just to start with, there are at least 5 combinations, all with very difference tax implications; only 1 of which will be optimum for any particular driver, depending on tax bracket, annual business and private mileage and availability of alternate vehicles:

1. Company car with private mileage and fuel
2. Company car with private mileage without fuel
3. Company car without private mileage
4. Opt out cash equivalent with company fuel and no mileage allowance
5. Opt out cash without fuel and with mileage allowance

In general, if I had to drive 25,000 miles a year on company business, I'd want to do those miles in as nice a car as possible. If my private mileage was low, I'd take the opt-out cash with company fuel, pay my employer for private mileage to avoid fuel tax and add my company car tax saving to my after-tax allowance to buy a 48 month 15,000 mile lease which I'd trade in at 36+ months to avoid an excess mileage charge.

[m1bjr]

God my head hurts

[doughboy]

Originally Posted by m1bjr

God my head hurts

LOL, well you did ask

That's why we pay an accountant to advise us on all this, do our self assessments and set out our plans each year.

We have a business too, but I know the accountants only charge £80 to do SA and advise on your options, you could save that fifty times over easily if you're not currently well advised.

Its not tax avoidance, its making sure you pay the right amount...

[Robbie200]

Originally Posted by SteveC

Actually he has allowed for the the personal allowance

For 2013, personal allowance is £8105 and the 40% limit is at £34370 i.e£8105 @ 0% and £26265 @ 20%). For 2014 the figures are £9440 and £32010

No he hasn't.

First £8,105 is tax free and the next £34,370 is taxed at basic rate. You need to earn £42,475 (£34,370 + £8,105) before paying higher rate tax.

[Hotcoupe]

Originally Posted by m1bjr

God my head hurts

You did ask

For the first time in 10yrs I'm back in a fully funded CC,all I have to do is write a mthly cheque to the company for any private mileage I've done.
A car allowance is not an option.

Actually I'm quite pleased with that scenario,with a car allowance I'd have no doubt gone out and bought another 335D,modded it within an inch of it's life,and spunked thousands .

I seem to recall doing that umpteen times before!
The modding days for me are at an end sadly,bar a lottery win.

By far the easiest opt out option is to fully fund the car yourself, and NOT have a fuel card, this just complicates the whole process.
One spreadsheet that shows only business use is so simple.

All the other bollocks is unnecessary,and for a simpleton like me,is an admin nightmare that I don't need.

Originally Posted by Robbie200

No he hasn't.

First £8,105 is tax free and the next £34,370 is taxed at basic rate. You need to earn £42,475 (£34,370 + £8,105) before paying higher rate tax.

Robbie's correct, I didn't allow for the Tax man's generosity in terms of the personal allowance, and Robbie's maths above are bang on the money.

It's funny or tragic,but in looking into the tax allowances and other shite,the higher bracket for 40% tax seems to have dropped quite dramatically over the last few yrs.

What the F*ck is that all about!

Steve, enough of the complicated questions,come back with pics of a Porka,or 3351/D, your headache is contagious,and my brain has now gone all jelly like

[BGM]

are the £450 / £550 figures before or after tax?

[AlanQS]

This will take a while; Here's a sample. Let's assume you earn £45k a year and pay 4% pension contribution. You are a regular permanent employee with a normally operating company. (Figures calculated on new tax year coming up.)

If you receive £45k as salary with no company car and no car allowance your tax and NI bill is approximately £12,186

Let's assume your new car will be a 318d SE (couldn't find ES prices). Keep it simple and forget about any fuel benefits. Your total tax and NI bill will be £14,152

If you take the car allowance instead (extra £6,600 per year) your total tax and NI bill will be £14,958 but in comparison with the company car version you will have £5,794 per year more cash in your pocket than if you had a company car. You have to purchase, insure, service, re-tyre etc. your chosen car for under £5,794 per year or your own car is costing you more than the company car. (£482 per month.)

Now, let's look at the rest of the situation. With a company car, you get 17p per mile. Unless your company has some sort of deal with HMRC (unlikely) you are not entitled to tax relief on the difference between 17p and the 45p per mile HMRC figure (45p for first 10k, 25p thereafter) but you are entitled to it if you have a car allowance (after all, that's taxed income). If you do around 25k miles of claimable expenses that is going to net you about £1,600 per year tax rebate.

This is going to give you an extra £7,400 per year (£616 per month) over your company car net pay with which to buy and run your car and leave you with the same amount of net income you have with a company car.

Insurance: minimum £500 per year depending upon where you live and what you buy (25k miles will add a lot to your premium). Average of 1.5 services per year, one set of tyres per year, within two years of having your (assumed) second hand car, at that kind of mileage you also need to allow for reasonable repair items of at least hundreds of pounds. At the minimum, this is going to cost £130 per month leaving you with £486 per month for the capital purchase of the car.

This is the most optimistic viewpoint and is unlikely. You already have a car for private use, you would only use this car for work and you would be unlikely to afford anything better than you would get as a company car.

You could of course - as I said in my last post - use this as an excuse to get into something you couldn't otherwise afford, but from your posts, that doesn't appear to be a requirement for you.

The only other possible benefit of taking the car allowance is actually to put more money in your pocket. Buy a bit of a diesel clunker that will last you for, say 18 months at £2 or £3 grand a time and you will add about £150 to £200 per month to your take home pay though you have to bear in mind that some companies have restrictions on cars provided when they pay car allowance - such as, no 2 seaters, no convertibles, or no cars over five years old - stuff like that.

Your choice is also affected by what you are used to. In my own case, I had always bought my own car so when I joined a company that did company car or car allowance it was a no brainer for me. At the time, my car was 18 months old, paid for, and was a much better car than the makes I was allowed to get under the company car scheme so I took the car allowance and had more money in my pocket for the next three years until I bought my next one (which I would have done regardless of my employment circumstances). It also helped that I didn't have to do great mileages for work so the car wasn't being driven into the ground.

Hope this helps.

[Sir_Pigley]

Originally Posted by m1bjr

Wow,
a concise answer and very quickly.
Thanks for taking so much time mate.

I am doing 25k per year. I rarely use it for private as I have other toys.
Opting out looks nonsense doesn't it?

The idea was to go used/cheap and bank some cash this time, knowing I can change my mind.
I thought upper tax limit was over £42k though, your numbers dont allow for the tax allowance?

So taking those figures you have the followwing to fund the car:

£550 pcm * .6 = £330 per month

Assuming 25k business miles then:

10,000 * (0.45 - 0.17) = £2,800 tax relief
@ 40% = £1,120 or @ 25% = £700

15,000 * (0.25 - 0.17) = £1,200 tax relief
@ 40% = £480 or @ 25% = £300


Total tax relief @40% = £1,600 = £134 per month
Total tax relief @25% = £1,000 = £84 per month


So you end up with £464 per month to fund the car, tax, maintain, insure and tyres etc or £384 if only able to claim tax relief at 25%


However as someone else says you have to add to this what you would have been taxed as BIK on the company car.

So on a basic 316d ES BIK is 17%, so the tax burden on at 40% tax payer would be £1714 and on a 25% payer £1071. Thereby adding £143 and £89 respectively to the monthly budget.

So 40% tax payer has £607 monthly to play with and
25% tax payer has £473


Next we need to consider whether the OP would be making an "profit" on his 17p per mile from the company, which we have so far assumed is consumed by his fuel costs.......

If he gets a car capable of 50mpg then he'll be paying about 13p per mile for diesel at today's prices, so he's be maing 4p per mile x 25k miles = £1000 or around £83 per month. Obviously this will reduce as fuel costs rise or if he gets a less economical car.

so now

the 40% tax payer has £690 monthly to play with and
25% tax payer has £556

[gIzzE]

You can do a personal contract hire on a new Mercedes E220cdi sport auto for £399 a month including vat for 2 years doing 25k miles a year.
That is with just £1200 deposit.

[AlanQS]

From April 6th

Standard tax allowance - £9,440
20% tax on next £32,010
40% thereafter

If you are over the upper threshold for NI with your basic salary you will pay 2% on your car allowance so it will be £550 * 0.58
Tax relief on mileage is 40% or 20% dependent upon your taxable salary.