Hi All,
My company is considering offering me a company car, up to around £20K. I'm getting a bit confused trying to work out the tax implications and wonder if anyone on here could help?
Looking at (possibly) a new Astra ecoflex 1.7 CTDI (local VX dealer is doing some good offers that the bosses are keen on). Now my salary package is £15k basic plus commission and petrol at the moment. They are loooking to keep the basic but reduce the percentage commission on each job in lieu of the car. What I can't work out is what the company car tax deductions would be worked out on, given that annual salary could be anywhere from £30 to £70 (I wish)?
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In practical terms, the company car tax deductions are calculated on the basis of 20% income tax rate. It would be your bonuses that would be subject to 40% tax, if relevant.
In economic terms, the car should be treated as being taxed at your marginal rate. If you earn, in total, 30k in the year then your car is taxed at 20%. If you earn, in total, 80k in the year then your car is taxed at 40%. It all depends on your realistic assessment of your likely earnings.
Calculator here: cccfcalculator.hmrc.gov.uk/CCF0.aspx
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you can only work out a range of how much it will cost you because your tax could be basic or higher and your contribution will vary ( or will it - is a reduction in payments counted as contribution?)
Anyway
List price 19k co2 119, Bik = 13%, therefore £2470 Benefit in Kind.
Means it will cost you at least £494 if you are paying basic rate tax, £988 if you get to pay higher rate tax
Do you get free petrol?
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At the moment (correctly or not) I give them the petrol receipts and they re-emburse me. There is no defined business/personal usage but going forward if this pans out they will be getting me to log business mileage and claim at the current mileage rates. Its all part of finally getting this side of the business more professional...
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>>At the moment (correctly or not) I give them the petrol receipts and they re-emburse me.
That enables them to reclaim the VAT. You are entitled to a deduction for tax purposes of the difference between 45p per mile (for the first 10k miles, 24p thereafter) and what they're actually paying you.
e.g. 1000 miles gives you a £450 allowable cost. They pay you £150 for the petrol. You can therefore claim (£450-£150) = £300. Based on a 20% tax rate, that gives you £60 of tax back.
Claim in your tax return if you do one; write to HMRC to ask for the rebate if not.
Last edited by: Mapmaker on Wed 11 Jul 12 at 12:59
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Err, I would let sleeping dogs lie, they will ask about "personal mileage" and deduce that free fuel for personal use should be taxed.
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>> Err, I would let sleeping dogs lie, they will ask about "personal mileage" and deduce
>> that free fuel for personal use should be taxed.
Unless I've missed your point, I doubt it very much. Don't think about it as free fuel for private mileage/fuel for business mileage.
Think about it (sticking with my example numbers) as:
1. He does a certain amount of business mileage which entitles him to £450 of expenses
2. He receives a certain amount of cash which amounts to an amount less than £450. (Unless he does a ridiculous amount of private use mileage, which would make him unlike any other salesman I've ever heard about his petrol receipts will amount to less than the amount in (1) above.)
3. Therefore the difference between '1' and '2' is a tax deduction.
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But he doesn't. He give the company *all* his petrol receipts and they pay him. There is no differentiation between personal and business miles. He has no "mileage" figure to give to the inland revenue, let along claim 45 p a mile for it.
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>>
>> But he doesn't. He give the company *all* his petrol receipts and they pay him.
>> There is no differentiation between personal and business miles.
You miss the point. He drives 1,000 miles. He is therefore entitled to a tax deduction for £450. He is paid, say £300, he is therefore required to report taxable income of £300. The net result is a net deduction of £150. No need to worry about what he's receiving cash *for* as he is (1) entitled to a deduction, and (2) receiving cash. (Cash/cheque/whatever.)
>>He has no "mileage" figure to
>> give to the inland revenue,
I agree, there may be a problem if he doesn't.
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If you take the company car, does that mean you are obliged to claim mileage rather than be refunded out-of-pocket fuel costs?
I have a friend who has a company car, and fuel is paid for using a company fuel card. This turns out to be the most tax efficient method for him. When choosing the car, the key consideration is to get a car with the lowest possible list price, because in Ireland his BiK tax liability is calculated on the list cost of the car.
Since 2007, tax on new cars in Ireland is calculated on CO2 emissions. In practice his priority is to find the lowest official CO2 output car available to him that has as few extra-cost options as possible (e.g. aftermarket sat-nav, standard aircon...). Actual running cost per mile is not so important because the differences in tax more than swallow any saving to be made on fuel economy or service intervals!
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My bosses currently have fuel cards, so I'd imagine this might be a way to go. Nothing has been decided yet - I think they are to some degree being guided by their employees here!
If you use a fuel card, do you still make a mileage claim etc or is this taken care of through the card contract/company?
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Procedures vary. You have to provide your mileometer reading each time you use your card but this is not provided to the IR.
Usually you use a fuel card for all your fuel, and you carry an additional BiK penalty from the IR.
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>> Usually you use a fuel card for all your fuel, and you carry an additional
>> BiK penalty from the IR.
the BIK value is about 20k, so at 20% it's 4k, and at 40% it's 8k. You have to do a hell of a lot of private miles to make that worthwhile.
Alternatively you get a fuel card and make a payment to your employer for private miles.
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Our scheme for fuel has us all use fuel cards and we declare private/business miles driven each month. The total cost of fuel purchased is split pro rata between private/business and the private element deducted from salary the following month.
It's not the fairest system in some ways but it can be exploited to get your personal mileage cost down some months. Most of my mileage these days is actually private anyway.
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>> the BIK value is about 20k, so at 20% it's 4k, and at 40% it's
>> 8k. You have to do a hell of a lot of private miles to make
>> that worthwhile.
Sorry, that's not right. There's a CO2 multiplier as well. The cost is somewhere between 1 and 5k.
Still a hell of a lot of fuel.
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OK, think this is confusing me even more. Currently doing around 13k miles business and 3-4k private - basically all funded in terms of petrol cost.
If I have a company car, I will only be claiming for the 13k, but this will include allowance for wear and tear (the 45p a mile rate).
Any car I choose will be in the lowest BIK band. I would be happy with a cheaper car if that improved the figures, would a list price of, say, £14k make much difference in the grand scheme of things?
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List Price x Co2 rate = Bik Value
BiK Value x Tax rate (20% or 40%) = Annual Tax Cost to you.
So yes the lower the list price the lower the cost to you assuming the same CO2 rate.
(Also note that the CO2 rates generally increase 1% each tax year over the period you keep the car.)
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Will your employers give you an extra payment in exchange for them giving you a cheaper car?
google company car or cash
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>> If I have a company car, I will only be claiming for the 13k, but
>> this will include allowance for wear and tear (the 45p a mile rate).
No. There car is not yours, there is no wear and tear for you to shoulder, you get the car and then you should claim the actual fuel costs for the actual business miles. This could be done by you having a fuel card, using the card for all fuel then paying your company xp per mile for actual fuel use, or you pay for all fuel used and then claim xp per mile for actual fuel costs. Note no wear and tear element as this is a fully expensed and serviced car.
>> Any car I choose will be in the lowest BIK band. I would be happy
>> with a cheaper car if that improved the figures, would a list price of, say,
>> £14k make much difference in the grand scheme of things?
yes, and the lowest CO2 figures you can find will also help. Note its the full list OTR price of the car, the IR allows no leeway for the actual price paid.
>>
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This site is really good. If you follow the menus you can ask it for the cheapest bik cars filtered by the type of vehicle you need / want etc and there's a facility to choose a car, enter your salary and see what the effect is with or without fuel benefit.
www.comcar.co.uk/
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I used to dream of having a company car, but trying to follow this thread makes me glad I haven't. My puny financial brain couldn't cope :)
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>> you can ask it for the cheapest bik cars filtered by the type of vehicle you need / want etc
Most of the new cars we take out are eco diesel models, i.e. Golf/Touran 1.6 BlueMotion, SEAT Ibiza 3-cyl Ecomotive, BMW 320d EfficientDynamics, Renault Grand Scenic 1.5DCi.
It seems that a low CO2 figure holds more sway than low list price with user choosers.
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Bit of an update.
Latest suggestions from my bosses are the following:
Basic goes from £15k to £18k, use your own car and get paid business mileage
Basic remains at £15k and company car provided up to value £20K and <15%BIK. Again business mileage paid.
OTE will be around £35-45k. Annual mileage for business is going to increase substantially from about 13k miles to maybe 20-25k since my area is going to cover the whole of the south east.
So back to the original question - is taking a new company car worth it?
I would be looking at replacing my car anyway with this mileage increase, but am not in a position to buy new or nearly new for at least another year without taking out quite a bit of finance - which I really want to avoid.
Help!
Last edited by: PeteW on Sat 14 Jul 12 at 12:31
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If I was doing 20~25k business mile then I'd be taking the company car; I wouldn't want to take out financee to provide my own car. If nothing else, the level of mileage would make a personal lease or PCP quite expensive I think.
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Wholeheartedly support Peter's view. From the example you gave, your income is going to be mainly driven by your ability to work efficiently. Take the company car and it's one less thing to worry about. Sounds like you'll be too busy working to have the time to concern yourself with the possibility of finding alternative transport if your own car was off the road for example. Go for a low bik model if you can and it'll all stack up.
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Agree 100% with Humphs view. The major benefit of a company car is the sheer lack of aggro. When your earning potential depends on your car, the lack of hassle is almost priceless
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>>Agree 100% with Humphs view
See, how difficult was that? Just relax and accept that I'm usually right. Save you a lot of stress. 'specially now you're "getting on" in life...
:-))
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Thanks for all the advice. I think company car is going to be the way to go, and I rather fancy the new Volvo V40 (D2). Might have to wait until September/October and keep negotiating!
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>> Agree 100% with Humphs view. The major benefit of a company car is the sheer
>> lack of aggro. When your earning potential depends on your car, the lack of hassle
>> is almost priceless
I also agree with this.
In terms of costs, my 320d is a no-brainer for my circumstances right now. It costs me £140 in BIK a month in tax for the car, and £85 a month for the fuel benefit (which is as much fuel as I want). Both these figures are linked to the CO2 emissions of the car, which at 109g/km for the 320d ED, is about as low as it gets.
These figures will increase next year to £149 for the car and £90 for the fuel, and the year after to £159 and £96 respectively.
This is not only my commuting / business car, but our main family car as well. Between these duties, I burn about £200 worth of fuel a month. That makes the £225 a month total tax bill look incredibly attractive. Plus not even having to think about the fuel is a great feeling. If we want to go down to the coast for the day, or see family at the other end of the country, we can just do it without having to worry.
If my private mileage or commuting were to fall back, I could opt out of the fuel card, fuel it myself, and save the £85 a month in tax at any time), but while I continue to use more than a single tank of diesel every month, the fuel BIK is worth paying.
And on top of all this, no insurance, road tax or service bills to worry about. Get in it and drive it. If I lose my job tomorrow, it all disappears, so I'm enjoying it while I can. :-)
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more business miles than private miles then cheapest way is probably take the money and run your own car, buy a 6-12 month old Focus and change it each year. Get problems fixed quickly and insurance cover to include replacement car.
Claim the appropriate proportion of running costs against tax.
Some time and effort involved.
Now if you are doing more than 10k a year AND if it is more personal milage than business - as mine is - then take the company car (as I do).
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Humph wrote:" Take the company car and it's one less thing to worry about. Sounds like you'll be too busy working to have the time to concern yourself with the possibility of finding alternative transport if your own car was off the road for example."
In general I'd agree with him. BUT it seems PeteW's employer is a tiny company. Worth finding out whom they're leasing it from/if they're buying it etc. etc. in order to ensure this peace of mind. Otherwise PeteW will just end up with the same amount of hassle as if he'd been running his own car, and will be paying for it.
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Is it worth it? - Mapmaker
