Just done a tax computation for a guy who has been allocated a fully funded (petrol) Mercedes S350L as his Company car. The taxable benefit in kind came to £23,508 for this year.
In other words the Revenue are saying that this car being available to you for your private use is currently worth £23,508 per year.
What do you think?
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Simple answer - no, not in my opinion.
What surprises me is that someone who is allocated an S-class is on a contract of employment, rather than being self employed or the like..
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That doesn't surprise me, other Directors here have them.
What does surprise me is the cost. Presumably for a taxable BIK of £23.5k, he's paying another £10kish in tax or thereabouts.
How many years does he have the car for ?
When I last looked it still wasn't worth my while.
The first thing is you have to compare a company car financially with the concept of having your own car which you replace every two (in my case) years.
Clearly comparing a company car against your own car which you would buy 1 year old and sell after 4 years would always be against the Co. Car.
Given that, the question is really could depreciation, maintenance, insurance, lost interest on the money (or interest payable on the loan) and the rest cost you more than the loss of allowance and increased tax on a co. car.
In my case I would have needed to do in excess of 30k miles per hear of which a minimum of 17k would need to be private mileage in order to make a co. car worthwhile financially.
Whether or nor petrol in included and whether or not that covers personal and business mileage also make a difference.
Mind you, all of that is for the financial decision - there is the emotional decision that could also motivate one to get a company car - I've spent money for that kind of reason.
You value money by the amount of your disposable income, not your total income, and depending on your lifestyle that can vary a lot from one person to the next.
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is on a contract of employment>>
That ain't necessarily so - it could be the firm's chairman, CE or similar.
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>> is on a contract of employment>> That ain't necessarily so - it could be the firm's chairman, CE or similar.
Well I'm a partner in the firm, and am therefore self-employed. The tax treatment of our cars is something I struggle to understand, but it is not the BIK rules that apply to employees - it is much more generous.
If I was an employee then there is absolutely no way on earth that I would take the company car.
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One of my two best mates is the chairman of his own highly successful company - his choice is an S-Class (500L at present) and he pays tax on his car etc. Even then the total BIK and income tax he pays doesn't equal the £23,508 BIK value of this particular cheaper Merc, judging by what he's told me over time.
I do know that his company keeps merticulous accounts - they have to otherwise the proverbial ton of bricks will come down on them.
Even the local NHS accounts department admitted to my daughter in relation to her Crown Service vehicle the fact that the IR took no notice of which business or service was involved in cases of (alleged) misrepresentation - it would be fined very heavily if the accounts were not spot on.
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The basic list price is £52,000; as I've never had to pay company car tax I can't comment on the £23,508, but have no doubt the tax paid on that figure by your client will probably buy a new Ford Mondeo or similar.
There's a company car and car fuel tax calculator facility at the Inland Revenue website if you wonder if you may have erred (not that I'm suggesting you have!):
online.inlandrevenue.gov.uk/calculators/cct/CctPag...p
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The tax system is deliberately set up to discriminate against cars with higher emissions.
This was done to encourage people to take this into account when choosing a company car. It has been partly successful, but doesn't help in cases where people can take a cash alternative.
The taxable value of the benefit is up to 35% of price. Additional tax is charged (at a very high rate) if the employee gets free fuel for private motoring.
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I suspect its a case of if you can afford it your not really that bothered but anyhow having a company car has additional benefits.
I remember when I had a company car, the car scheme for the comany was being run by Avis at the time. Some idiot drove in to the back of me at a roundabout. The car was undriveable, I called Avis and they drove an identical replacemnet vehicle out to me at the roundabout I got in and off I went. Everything else was for them to deal with, they got full recovery from the idiot by the way. They returned my car a month later mended and took away the other one. Compare that to what I would have had to do in my own car!
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He pays tax on £23,508 - ie £9403.20 (£783.60/mth).
The point is that, IF you want that kind of car, then even £783.60/mth (with everything paid for, and no worry's if it gets nicked/damaged/breaks down etc etc) is probably a good deal.
Of course, in most companies now, you could take an allowance instead but they're usually designed so that you do no more than break even - there's generally no compensation for the risk of ownwership that you're taking on. I don't even want to think about what servicing/tyres etc would cost on an S Class Merc.
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£783.60/mth
Now that's more like it.....
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>>Now that's more like it.....>>
..but how can you afford to live on the remaining £217.40 left after tax each month?
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