Tag: Company Car Allowance

If you have the choice of a Company Car or Company Car Allowance, you should check out how much Company Car Tax (or Benefit In Kind Tax as it is also known) that you would pay if you accept a company vehicle, and then decide whether to go for the Company Car or cash. You could be better off taking the car allowance and leasing a car yourself, even though the allowance is taxable.

The Cash for Car scheme has become increasingly popular with both employers and employees in recent years. Employers save time and money in not having to source, maintain and administer a fleet, although they must always be aware of their Duty of Care and Health & Safety responsibilities. And as an employee, you have more freedom to choose the car you drive, and you could even be better off if you dont spend all of the company car allowance you receive. However, some employers do stipulate the type and age of vehicle that is acceptable, according to the job you are doing.

If you choose to accept a Company Car Allowance, its worth considering Car Leasing vs Buying. Car Leasing (also known as Contract Hire) is simply the hiring of a vehicle for an agreed period of time for a fixed monthly rental. Unlike Short Term Rental or daily rental, a car lease is usually for 2-5 years, after which you can simply hand the car back with no further commitment or, in some case, you may be able to purchase the vehicle if you wish. Car Leasing is a convenient, cost-effective and hassle-free way of financing a new vehicle, and there are many benefits of leasing a car. It enables easy budgeting of your motoring costs, and the fixed monthly payments can even include servicing and maintenance. Also, theres no need to worry about depreciation or disposing of the vehicle at the end of the contract.

Dont forget that if you choose the company car instead of the company car allowance, all your motoring costs (except private fuel) will be taken care of by your employer including insurance, road tax, servicing and repairs. If you choose the company car allowance, you will have to pay for these things yourself.

If you choose a company car allowance and lease a vehicle which you use in the course of your job, youre entitled to claim from your employer a mileage allowance for each business mile travelled. H.M. Revenue & Customs approves certain mileage rates that employees can claim for business travel, and the current rate is 40p per mile. Check the HMRC website for the latest information.

Part way between the company car and a company car allowance is something called Employee Car Ownership. This is where your employer gives you a car allowance, but the company organizes the finance deal and takes care of insurance and running costs. This may also be worth considering if your employer offers such a scheme.

First of all, lets see how Company Car Tax works

If you drive a Company Car, you are liable to pay tax as it is classed as a Benefit In Kind.

Company Car Tax or Benefit In Kind Tax must be paid on your company car if you, or a member of your family, use it for private use. This would include travelling to and from your place of work. If you drive a company van, the rules are slightly different in that you should not be liable for tax if the only private use is to go between work and home.

How much Company Car Tax will you have to pay?

There are a number of things that affect how much Company Car Tax you pay. The Benefit In Kind tax you pay on your Company Car is based on the P11D value of the car (its list price including any extras or options), the CO2 Emissions of the car (the lower the better), the rate you pay tax on your income, and whether your car can run on an alternative fuel. Furthermore, if your employer provides you with fuel and you use some of it for personal travel, you would also be liable for Benefit In Kind tax on this Car Fuel Benefit.

Further Information on Company Car Tax & Benefit In Kind

To help you work out how much Company Car Tax and Car Fuel Tax you will have to pay, why not check out the Company Car Tax Calculator provided by HM Revenue & Customs. Also, there is a Government website all about Company Cars which provides useful information and guidance for both employees and employers. It explains the rules about Tax and National Insurance relating to Company Cars and company car fuel. Changes in the rules relating to Company Car Tax are usually declared at Budget time. If youre interested in finding out how future changes might affect you, take a look at the Governments Forthcoming Changes To Car Benefit site.

Of course, there is a way to avoid paying Company Car Tax altogether, and its not illegal! If your employer gives you the choice of having either a Company Car or a Company Car Allowance, you could choose the cash alternative, lease or purchase your own vehicle, and then claim an amount back from your employer for business mileage (currently at a Government set rate of 40p per mile). You might like to check out the sister article to this one, called Company Car Or Company Car Allowance – Which Should I Choose?, which explains the benefits and disadvantages of each option.