Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - jimihat

Hi All

Bare with me here, I tend to go on a bit!

I currently have an Audi A3 Sportback S-Line 1.4 TFSI Auto company car, this goes back in September. I cover 20k per annum roughly.

I have recently become a father and am finding that space is previous, cloth seats get stained, and sports suspension + low profile tyres are killing me.

I've requested a E220 SE for my new car (has leather, sat nav, cruise, parking sensors as standard - all must haves for me). Amazingly it's about £80 a month less than the Audi on a 3 year lease. It's not confirmed that I'm allowed it yet as it may be seen by some of my superiors as being "above my station" so to speak. I'm just inbto 40% tax so the Merc would cost me £2700 per year in co car tax.

If I don't get the Merc then nothing much else is really blowing my skirt up; either spec is not great at my budget level (£500 per month inc VAT is the limit on a work lease). Or co car tax is prohibitively high (£2700 really is the top of my budget). With this in mind I'm considering takign a car allowance instead of a new company car but am note sure about the tax implication; I cant seem to find an answer online either but can guess what probably happens. Work give £6000 a year car allowance and will pay me 25p for business miles if I choose to go down that route, obviously I have to tax/insure/maintain it etc.

Am I right in thinking that I would be taxed 40% on my £500 per month car allowance? do you have to pay national insurance on it too??? Tax alone would leave me with only £300 but at least I'd be buying a personal asset as such. The Co Car tax on the Merc would be costing me £225 per month so added to the £300 after tax car allowance (if that's what Id get) Id actually have £525 (in theory) to deal with everything.

Any thoughts would be appreciated; especially any comments regarding how tax works on a co car allowance from anyone currently taking a car allowance.

Thanks in advance

Jim

Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - Falkirk Bairn

Tax & NI on Monthly allowance.

You can reclain the difference between the rate you are paid 25p and 45p for the first 10,000 miles i.e.10K x 20p = £2,000 @ 40% = £800. End of tax year - Fill in the self assessment on line and the rebate money comes pretty quickly thereafter.

Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - jimihat

Thats worth knowing, thanks for that.

Am I right in thinking the the £500 per month car allowance would just go onto my pay and be taxed at 40%?? do you know if id have to pay NI on it too?

Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - Falkirk Bairn

If you read above - line 1

Tax & NI on Monthly allowance

The only way to save money is to buy a lesser car and, assuming reliable, run it into the ground.

2 x former employers bought my car 2 x over in the 5 years I had it (Depreciation, repairs, servicing, Ins & RFL etc etc) and I had "free motoring" apart from private petrol

Old model clearance from Honda was £16,000 retail, bought for £10,500 with 10 miles on clock

Sold with 93K on clock for £2,500

Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - oldtoffee

Leasing it yourself, 3 years, 60k miles would cost you around £400 a month inc VAT. That would leave you about £100 a month to run it plus maybe £100 a month back from HMRC on mileage allowance depending on how many extra miles you do over the first 10k. You'll make a bit of profit on the fuel costs for the first 10k miles. I average around 30 mpg and do 10k business miles a year and get 45p a mile from the company so I clear £2,200 a year which pays my 10k pa private fuel. At 35mpg you'll spend £1,800 and get £3,300 back in allowance and tax for the first 10k business miles. The business miles over 10k wont give you back much of note.

Over 3 years you'll have to pay for 2 or probably 3 services (£1,000) and 8 tyres (£1,000), 3 years of insurance premiums (£?) and if you have my luck 2 windscreen excesses and 1 new tyre due to a puncture. Somebody keyed my car a couple of weeks ago and that's £300 thats not worth claiming on with a £250 excess.

The only way IMO to get into a very nice pricey car like that is to have it as a company car and sleep easy safe in the knowledge if anything breaks or hits you its someone else's problem. Alternatively buy a 2 year old Focus TDCi, find a good independent garage and you'll have "some" money left over in your pocket each month.

Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - concrete

Hello Jim, do yourself a huge favour and buy your own car and claim all mileage at the current rate from HMRC. 45ppm for the first 10K and 25ppm thereafter, so on your annual mileage you can claim £7K. You have to fuel, insure and service the car yourself but your salary will increase because you are not being taxed or NI on a benefit in kind. You will see your tax code rise to 944. I did this over 10 years ago and have never regretted it. You get to choose what you drive to suit you too. You do need discipline though. Look after the car well,and keep it for a long time. Once the purchase price is paid all the mileage money is yours, except running costs. My latest car is 7 years old, 165K miles and goes like a dream. I have claimed over £54K in mileage and spent just over £26K on fuel, insurance, servicing, tyres, raod tax etc so do the sums yourself. Cheers Concrete

Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - jimihat
Thanks Concrete. So you're suggesting that I don't even take the £500 per month (before tax) car allowance at all???
Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - oldtoffee

>>>>Thanks Concrete. So you're suggesting that I don't even take the £500 per month (before tax) car allowance at all???

Doubt it as I think he's factored that into his maths to recommend you follow his choice which tbh is sound provided you take a long term view and run the car carefully for that number of years. Then once the car is paid off you'll make much more money out of the deal. Concrete has made a tidy sum as he has chosen not to replace his car every 2 or 3 years. He also would have been charging 40p/25p a mile back in 2006 and only paying 99p a litre for diesel so he's not making that "profit" now. Check with your company that they don't have any rules that stop you driving a car over 4 or 5 years old. I know many people who buy decent mainstream 2 year old cars that have suffered a big depreciation hit and they run them for 2 or 3 years and repeat. Makes more financial sense but they don't drive Merc E Classes.
Mercedes E220 CDI SE Tip - Company Car Allowance - Tax Implications - Rochdale Pioneers

If you want a fancy car you are probably better off on a company car for the simple reason that they will provide much higher capital outlay and pay its higher maintenance costs.

I had company cars for 12 years until a change of job last September switched me onto a £5k allowance, which after tax and NI is around £280 a month on top of salary. Also factor in the tax saving of not having a company car (albeit might not be massive depending on what you had). In my case I handed back my 2011 520d (which I disliked in so many ways) and took over my wife's Hyundai i30 1.4. In red. We owned her 3yr old low mileage car outright, and spend my allowance on a Citroen Grand Picasso which is much better transport for my 3 kids.

The plan is to pay off the Picasso in 2 years and then run both cars for as long as it is economical. I get 15p a mile plus a further 12p tax rebate to run an i30 TTY that costs around 12p a mile in fuel, so the rest covers modest maintenance costs (new tyre was £58 vs the £240 for the 5-series). As you will be able to add I'm going to make a significant amount if I can run the cars for another 5 years or so after paying them off. OK so its a more modest drive than I had, but I'd rather have the cash

 

Ask Honest John

Value my car