Car Allowance

[Steve]

Might have to make a choice quite soon about how to spend a company car allowance.

I want a family sized automatic estate and do approx 50,000 miles a year, of which about 45,000 are business miles.

What is the most tax-efficient way to spend the allowance (am not sure of the size of the allowance yet, but might assume it to be £450-£500 a month)?

1. Buy a new car on finance.
2. Buy a nearly-new car on finance.
3. Lease a new car with maintenance.
4. Lease a new car without maintenance.
5. Do any of the above on 2, 3 or 4 years finance.
6. Other options???????????

All advice greatly received. Ta.

[millerman]

i think either of the ways your gonna do it because of the mileage
your gonna struggle with leasing a car if you buy one outright it wont have a great resale value in say 3 years time not sure what your best option is really ?

[CChris]

[SIZE=3][FONT=Calibri]Based on this mileage, I would not go for new; nearly new would be the way to go, after all what’s a couple of thousand miles when you are going to have 150K on the clock by the end of three years. I would also look for as long a warranty as possible if you are buying, i.e. VW/Audi will only give you 2 year unlimited, you will expire the 60K third year long before you get there. Toyota now has 5 years and 100K, which must be worth a look. Don’t think you will find a lease with that mileage worthwhile, so finance it, after all it will have some value at the end, which you can pocket (all be it not much). [/FONT][/SIZE]

[SIZE=3][COLOR=black][FONT=Calibri][FONT=Calibri]Finally look at all costs, mpg, tyre cost, servicing, insurance ect. I do 18K miles a year, and ended up with a VW golf bluemotion, which is capable of 80+mpg (with the air con on), has tyre costs of £35 per corner, tax is £35 per year, insurance is £250, and servicing is £200-£300 per year, which saves me loads of cash :-) after all this car is a tool for your job, which is not the normal way of looking at cars.[/FONT][/FONT][/COLOR][COLOR=black][FONT=Wingdings][FONT=Wingdings] [/FONT][/FONT][/COLOR][/SIZE]


[FONT=Calibri][SIZE=3]Chris[/SIZE][/FONT]

[Steve]

Good comments so far, but what about the tax implications? Any accountants out there?

As I understand it, if I lease, then the entire cost of the monthly lease payment is tax-deductable, but if I buy then only the depreciation is deductible. However, with the running costs going through the tax mangle as well, there comes a point (maybe 30,000 miles a year or something) where the tax efficiency flips from one side of the fence to the other.

[Mark_T]

[quote=Steve;504628]As I understand it, if I lease, then the entire cost of the monthly lease payment is tax-deductable, but if I buy then only the depreciation is deductible. However, with the running costs going through the tax mangle as well, there comes a point (maybe 30,000 miles a year or something) where the tax efficiency flips from one side of the fence to the other.[/quote]

I've been out of this game for a few years so I may be out of date, but it sounds like you are confusing the tax treatment for a company with the personal position.

You mention that this is a company car allowance so I am assuming you are an employee not an independent contractor or running your own company?

If so then in simple terms, you get the allowance from your employer and pay tax/NI on that allowance through PAYE as normal.

You use the balance to provide yourself with a car/road tax/insurance and cover your own maintenance costs. tyres etc.

You claim a mileage allowance for business travel from your company as well or if for some reason you don't get this or only a partial payment you can reclaim against tax the difference between what you get and 40p/mile for the first 10,000 and 25p/mile after that.

As an individual, nothing else can be claimed against tax, not lease payments or depreciation.

[CChris]

[COLOR=black][FONT=Verdana]OK as far as tax is concerned, you car allowance will be taxed as per your normal income (22% or 40%), but since you are using your personal car for business miles you can claim relief at the rate of 40p per mile for the first 10K miles in a tax year and 25p their after, less any expense payment made to you by your company when doing these miles. For example I get 11p per mile from my company on expenses, you I have claim tax relief of 29p for the first 10K business mile and 14p their after on my tax return. [/FONT][/COLOR]

[COLOR=black][FONT=Verdana]Does this help?[/FONT][/COLOR]

[COLOR=black][FONT=Verdana]Chris.[/FONT][/COLOR]

[CChris]

[quote=Mark_T;504645]I've been out of this game for a few years so I may be out of date, but it sounds like you are confusing the tax treatment for a company with the personal position.

You mention that this is a company car allowance so I am assuming you are an employee not an independent contractor or running your own company?

If so then in simple terms, you get the allowance from your employer and pay tax/NI on that allowance through PAYE as normal.

You use the balance to provide yourself with a car/road tax/insurance and cover your own maintenance costs. tyres etc.

You claim a mileage allowance for business travel from your company as well or if for some reason you don't get this or only a partial payment you can reclaim against tax the difference between what you get and 40p/mile for the first 10,000 and 25p/mile after that.

As an individual, nothing else can be claimed against tax, not lease payments or depreciation.[/quote]

Beat me to it :D

[Steve]

I am an employee, and the fuel costs will almost certainly be covered in full by the employer via a fuel card.

[Mark_T]

[quote=Steve;504663]I am an employee, and the fuel costs will almost certainly be covered in full by the employer via a fuel card.[/quote]

What will happen is you will be assessed for tax on the total amount you spend on the fuel card (for both business and private miles).

You then reclaim the business miles via the Inland Revenue as per the figures I mentioned above and this then nets off against the tax you paid for using the card and given your estimates on the split between business and private it ends up in your favour.

Edit: for clarity, nobody actually pays you the 40p/mile it is just used as a figure to offset the tax charge.

[Steve]

[quote=Mark_T;504665]What will happen is you will be assessed for tax on the total amount you spend on the fuel card (for both business and private miles).

You then reclaim the business miles via the Inland Revenue as per the figures I mentioned above and this then nets off against the tax you paid for using the card and given your estimates on the split between business and private it ends up in your favour.

Edit: for clarity, nobody actually pays you the 40p/mile it is just used as a figure to offset the tax charge.[/quote]

So what you're saying is that my income tax code in the following year will be modified in my favour to account for the rebate, or I'll get a chunky refund from HRMC sometime after April 2011?

[Mark_T]

[quote=Steve;504669]So what you're saying is that my income tax code in the following year will be modified in my favour to account for the rebate, or I'll get a chunky refund from HRMC sometime after April 2011?[/quote]

In short, yes.

You can work it out pretty closely based on average mpg and your marginal tax rate along with the mileage estimates you've already posted.

[Mark_T]

Very roughly and I emphasise the *roughly* it might look something like this :

Assume it costs you £8,700 in fuel over the full year, all paid on the fuel card.

You claim your 45,000 business miles which gives you a figure of £12,750.

The difference is £4.050 which is offset against tax at your marginal rate so if 40% you'd get £1620 if 20% you'd get £810.

Not exciting numbers but it gives you a clue what to expect.

[waveydavey]

Make sure you keep all fuel receipts and business mileage records. A few colleagues have done cash for car and ended up with a right carry on when they have come to their returns. The IR have insisted on all mileage records for the year.

[Mark_T]

[quote=waveydavey;504697]Make sure you keep all fuel receipts and business mileage records. A few colleagues have done cash for car and ended up with a right carry on when they have come to their returns. The IR have insisted on all mileage records for the year.[/quote]

Excellent advice, especially with the split 45000 business/5000 personal as the Revenue will not accept that without a few questions for sure :)

[Steve]

[quote=Mark_T;504700]Excellent advice, especially with the split 45000 business/5000 personal as the Revenue will not accept that without a few questions for sure :)[/quote]

I spend so much bleedin time on the road for work, I never have any time to do personal mileage!

And we have our own car as well which my Mrs does all the running about town in.

The figures are guestimates at the moment, but we'll see.