Car allowance or Company car?

[joem]

Hi guys.
I am currently running a 1999 V reg E220cdi Elegance with 132k on it for work. I do 25-30k a year. I have a car allowance of £550.00 a month and 10p a mile for fuel. I know the 10p is a bit mean concidering current fuel prices but equally the £550 is quite generous. I could if I asked have a newer E220 CDi as a company car but I would loose my car allowance and fuel. Instead I would have a new shape E and all fuel paid for by the company but obviously I would then be taxed on both.

Anyone have an opinion on the best option for me,

Thanks.

 

[hawk20]

Not enough information. You need to set out in some detail exactly what you think the full costs are of running the current car. Fuel (rising), servicing, tyres, brakes (pads and discs), exhausts etc etc, VED and Insurance, and then add depreciation! Write it down as cash flow for each year for say the next 3 years. You might need to plan for some big repairs given the mileage. Deduct from the cash flow the £550 per month and 10p per mile for fuel allowance to get the NET cash flow.

Then try to work out all the bills inc tax that you will have with a company car.

Without more info I lean towards the company car on a number of grounds. You do big miles and your safety should be paramount. The more miles, the more risk. Newer cars have much improved safety and crash protection.

Second, your car is nearly nine years old and doing big miles will need replacing at some point.

 

[cj...]

I think if you are doing 10k per annum then you can find very good deals on p.c.p or personal contract hire in the premium brand sector.
once the mileage jumps up then the monthly payments shoot up also and the company car option seems the better bet I.M.O.

 

[Blobcat]

With 25-30K miles p.a. I would consider if you can switch to less £ per month and the Governments mileage rates of 40ppm for the 1st 10K & 25ppm for everything else. You will then pay less tax. You cannot claim back the MAR anymore however that is only at the prevailing tax rate so still not worth 100%

 

[jberks]

When faced with a similar decision I chose to buy my own. Slightly different as I own the company so it's my money anyway but the way I looked at it was

a) Company cars are taxed at full market value - I always buy at least 12 month old cars, saving around £10k on new and allowing me to have a much nicer model than I could if I bought new. I wouldn't want to pay tax on >£10k I hadn't spent.

b) A Merc is the kind of car you can keep for long periods, even at that mileage. 200k is easy. So, assuming you can pay it off before it's knackered (I go for 3 years max), you get a car, repayment and tax free for as long as it lasts. My mileage is fairly random these days, so when I bought mine I was doing 28k pa, 9 month later and that dropped dramatically and so far has stayed low. So, 7 more payments now and a <60k mile 4 year old E270 is mine.- no payments, no tax just the running costs.

c) Ok - repairs are expensive but we all know there are vastly cheaper ways to run a car if paying yourself, so the benefits of paid for repairs can be minimised. Indies instead fo dealers for servicing, Khumo instead of Continental for tyres etc Vast savings can be made.

d) Any value remaining in the car is mine, not the company's.

e) I claim the full 40/25p per mile rates which go towards keeping my overall tax bill down.

Ok, owning your own is taking the risk yourself rather than having the company do it, but I've generally found that it pays to take the risks yourself, whether a car, or even in employment as a whole.

The only other point is that the rate you get isn't that generous as they are stiffing you on mileage or to put it another way, building a large chunk of mileage in to the payment. As Blobcat points out, this isn't in your interests as you end up paying tax on it.
At the end of the day you need to do the sums.

 

[Rory]

You cannot claim back the MAR anymore however that is only at the prevailing tax rate so still not worth 100%

Really? - that's news to me.

It's certainly worth having - if the OP is a 40% tax payer then he'll get £1K for the first 10K miles back of HMRC, and £1.2K for other 20K miles he does.

 

[Blobcat]

Really? - that's news to me.

It's certainly worth having - if the OP is a 40% tax payer then he'll get £1K for the first 10K miles back of HMRC, and £1.2K for other 20K miles he does.

What I was meaning is that you cannot claim back MAR if your on the 40ppm/25ppm Government rates. You can only claim MAR if your on lower mileage rates.
My point is that if your doing big miles it is worth being on the Government rates as you get the full amount. if you are on 10ppm then you get that and up to 40% of the difference between 10ppm & 40/25ppm. I did build an excel sheet that worked out the optimum miles based on mileage allowances awhile ago. I will see if I can dig it out.

 

[Geezer]

You may find www.cashorcar.com useful.

 

[Ashley H]

I would tend to agree with jberks. i'm in the same position - it's my own company - and the tax bill on a company car looked horrendous when I looked into it (especially if it's not a brand new car).

Of course, there is a further option - keep your existing Merc as your own car for personal use (I assume there would be relatively little value to be realised through a sale) and have the company car purely for business use - my undertanding is that, under these circumstances, there would be no personal tax liability on the company car.

I'm not, however, an accountant so please check first!

 

[Ashley H]

Forgot...

Senior moment

Sorry, forgot to add my support for the comments about the mileage rate -you defintely need to discus with your employers a switch from high monthly allowance / low mileage rate to low monthly allowance supported by the tax allowance mileage rates of 40p & 25p.

Nice to be offered a new Merc anyway, of course

 

[Rory]

What I was meaning is that you cannot claim back MAR if your on the 40ppm/25ppm Government rates. You can only claim MAR if your on lower mileage rates.
My point is that if your doing big miles it is worth being on the Government rates as you get the full amount. if you are on 10ppm then you get that and up to 40% of the difference between 10ppm & 40/25ppm. I did build an excel sheet that worked out the optimum miles based on mileage allowances awhile ago. I will see if I can dig it out.

Ah, OK.

Well, it may be a moot point if the employer isn't interested in negotiating.

It's a good point though. In the OP's case, at 30K year he's very close to the point where he wouldn't need any monthly allowance if he could get the full 25/40p mile allowed rate, and it would save his employer money.

 

[Rory]

Of course, there is a further option - keep your existing Merc as your own car for personal use (I assume there would be relatively little value to be realised through a sale) and have the company car purely for business use - my undertanding is that, under these circumstances, there would be no personal tax liability on the company car.

That is correct, but you need your employer to be supportive and apparently many won't write the necessary letter to HMRC because they'll be in all sorts of trouble if you then do use the car for non-business use.

 

[hawk20]

Isn't it wonderful how complicated Chancellors of the E xchequer can make people's lives?

 

[mattsurf]

If you want a new car, go for the company car option, however, by doing this you will be out of pocket by £4000 per year (Plenty of people would consider this to be perfectly acceptible for a brand new Mercedes)

For a detailed breakdown, see below - if you want more details send me a PM

I have had the same issue (my car allowance the same as yours, and I do 17k miles PA, of which 7k are company miles).

Basically after tax you will receive about £4000pa from your allowance, Over the past 81k miles (and 3 cars) I have spent a total of £26k which includes all costs including the purchase costs of the cars (after taking into account that my current car is worth £5000) - which is a total of 31.7pence per mile - so based on an annual mileage of 25k miles your running costs will be around £8000 pa including depreciation, fuel, tyres, tax and insurance. From that deduct £2500 paid by your employer (@ 10 ppm) and you should be able to claim £2100 from the tax man (40% * (£0.4-£0.1)*10000 miles + 40% * (£0.25-£0.1) *15000 miles) - taking of this into account, your car allowance will cover the cost of running your existing Mercedes E220 and you will be in pocket by £560 at the end of the year.

Now consider that you will pay £3013 company car tax for an E220 CDI Elegance with no options. I assume that you will pay for fuel which I calculate will be 12ppm (optimistic) so your fuel bill will be £3000, Your employer will pay a contribution towards this of £2500. At the end of the the year, you will have paid out £3500 to have a company car.

In summary the total saving by running your own car is nearly £4100pa - over 3 years this is well over £12000 - That would cover a lot of unexpected costs.

Bear in mind that my calculations are based on all costs including depreciation, repaires, Tyres, VED, insurance, servicing, car washes - down to the last nut and bolt. You will see a post of Blobcat's costs incurred over 100k+ miles and I think that they are very similar to mine.