We have one of these schemes at work and I effectively get a free car from the co. They give me £348 per month and that pays for everything from the lease co inc insurance.
This is not taxed but goes direct to the lease co to pay for a car. The co gtees me leaving early, excess milage etc but if I trade up and then leave then the extra cost of a trade up is payable until the hire period would have been over.
For less then the cost of the tax in trade ups folks have got Z4s, bmw 2lds, tts, quatros and even an slk.
Companies like it because it saves them money.
EG
Old tax.......
Car 350 pm
Employee Tax 120 pm (eg)
Employers tax contribution 60 pm (eg)
Total cost 530 pm /Cost to employer 410 (350+60)
New scheme....
Car 350 pm
Employee contribution 60 (usually a contribution is still required)
Employers tax nil
£350-60 = £290 is the new cost to the employer and the employee saves £60 too!
The scheme is very popular and it does help to work for a bank that owns a leasing co though ;-)
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We have one of these schemes at work and I effectively get a free car from the co.
the inland revenue's stance on taxation of these schemes is explained at
www.hmrc.gov.uk/manuals/eimanual/EIM23055.htm
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New scheme.... Car 350 pm Employee contribution 60 (usually a contribution is still required) Employers tax nil
Doesn't the employer have to pay NI on the car allowance payment made to the employee?£350-60 = £290 is the new cost to the employer and the employee saves £60 too!
But the employee presumeably takes on (at least some of) the risk of ownership - ie car park dents, headlamps smashing, tyre damage etc. For £60/mth I wouldn't think it's worthwhile.
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Ah! Good - fund someone that's in the scheme!
What's the monthly cost of (say) an A6 2.7Tdi or a Beemer 530d?
what do you get for your £350?
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Ah! Good - fund someone that's in the scheme! What's the monthly cost of (say) an A6 2.7Tdi or a Beemer 530d? what do you get for your £350?
A Vectra, perhaps?
Andy, you're in for a huge shock if you think you'll be within a million miles of a 530d type car (unless you only do 6000 miles a year and pay for your own servicing). You also should ask your new company - their scheme rates could be pretty different (our supplier always seemed way more expensive than everyone else) and the company may not allow upgrades, may restrict your choice etc.
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Bill - I don't think my messages can be all that clear to you.
I completely understand that £350 won't cover a big beemer - I'm just interested in how much extra it would be. the tax on a 530d would be about £300 a month - so if it comes in at about £650 a month I'm in the same place as I would have been, aren't I?
They do seem to have a lot of X5s in their car park, which was what got me thinking about BMWs in the first place.
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Bill - I don't think my messages can be all that clear to you. I completely understand that £350 won't cover a big beemer - I'm just interested in how much extra it would be. the tax on a 530d would be about £300 a month - so if it comes in at about £650 a month I'm in the same place as I would have been, aren't I?
I do understand where you're coming from, and, if the scheme is as comprehensive as Zippy123's, then you will be in the same place either way around.
However, what I find amazing is that you can do an eco scheme where the company seems to bear *all* the risk. I can't believe that the tax man wears that, but good luck if he does.
Note that if *any* risk transfers to you, then you're not in the same place, you're worse off, but that's for you to judge.
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Re damage:
Not in my co's scheme the company underwrites all responsibility.
I dont think there is a residual NI obligation on behalf of the company. They do take assignment of the tax benefit of fuel usage where they pay say 12 pence per mile but the revenue allow 40 pence - only for private cars used for business - The differance is claimable in tax rebates the company keeps this.
An A6 2.7TDI sline would cost an extra £197 on our scheme based on an allowance of £348 - from our online quote system....
Monthly Company Car Cost
Trade Up/(Trade Down) £109.73
BIK Tax On Car £112.48
BIK Free Fuel £0.00
Total Cost £222.21
Tax Year 2005/2006
Monthly COS Cost
Trade Up/(Trade Down) £109.73
COS Contribution £87.04
COS Fuel Contribution £0.00
Total COS Cost £196.77
COS Saving £25.44
BMW 530D se
Year 2005/2006
Monthly Company Car Cost
Trade Up/(Trade Down) £185.00
BIK Tax On Car £85.75
BIK Free Fuel £0.00
Total Cost £270.75
Tax Year 2005/2006
Monthly COS Cost
Trade Up/(Trade Down) £185.00
COS Contribution £78.80
COS Fuel Contribution £0.00
Total COS Cost £263.80
COS Saving £6.95
The real benefit comes from petrol cars - my favorite is the SAAB 9-3 2.8 convertable...
Year 2005/2006
Monthly Company Car Cost
Trade Up/(Trade Down) £81.07
BIK Tax On Car £214.45
BIK Free Fuel £0.00
Total Cost £295.52
Tax Year 2005/2006
Monthly COS Cost
Trade Up/(Trade Down) £81.07
COS Contribution £103.99
COS Fuel Contribution £0.00
Total COS Cost £185.06
COS Saving £110.46
On my employers scheme a 2.2petrol Vauxhall Vectra costs about £320 all in so you would actually be refunded the £30 differance!
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Over the years the biggest expenses I've noticed on the company car are routine tyre replacement and hire cars when the car was in the shop. Does this scheme cover that? Also is there a mileage limit as I do over 30k private miles pa and is insurance covered? That certainly sounds like a scheme worth mentioning to our fleet manager.
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Tyres - yes they are covered save for kerbing - that said I have never been charged when mine was damaged.
Replacement cars are provided on our scheme.
70k over 48 months but they can be tailored. They would prefer the car back at 70k in 2 years and not 140 in 4 years.
Insurance is not covered on our scheme. The employer usually picks that up (they do in our case).
I dont know if any of these features can be customised but we are part of Lloyds Bank so may get preferential rates?
The autolease site is here...
www.lloydstsbautolease.co.uk/secure/
and there are links for large fleet and small fleet managers.
I have always had good service from them.
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many thanks for this, Zippy - my new firm uses Lloyds too, so sounds like it'll be similar.
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That's brilliant, Zippy - thanks.
So does that mean on your scheme the Beemer is about £260 a month on top of your £348? It's in the ball park...
See what you mean about petrol cars - they're always miles more on the tax %, aren't they?
I'm geting a pretty hefty pay rise to move, so i don't mind chucking a few quid in - I think my current car costs me £150 a month in tax plus about £100 for trade up and toys.
martin - I'm pretty sure the scheme covers tyres etc - they said all costs apart from fuel are covered.
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Yes 348+260 but no extra tax.
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Re damage: Not in my co's scheme the company underwrites all responsibility.
Shush!! - The tax man might be listening!
I dont think there is a residual NI obligation on behalf of the company.
Yep - your employer pays 12.8% NI on the car allowance (same as they would on a company car).
They do take assignment of the tax benefitof fuel usage where they pay say 12 pence per mile but the revenue allow 40 pence - only for private cars used for business - The differance is claimable in tax rebates the company keeps this.
Hmm - they keep *your* tax rebate. How bizarre. Based on 20K biz miles that's another £137/mth.An A6 2.7TDI sline would cost an extra £197 on our scheme based on an allowance of £348 - from our online quote system....etc
The rates, apparently including all maint, insurance, damage, unlimited miles (ie all risk), look fabulous. I can't believe the tax man will let this go long term, but you should grab it while you can.
I guess the only downside vs opting out completely is that (obviously) you never own the car, and there's no real opportunity to make money by choosing a very economical car and pocketing the mileage tax rebate.
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Remember the fleet cos get a huge discount. My car (not flash) has a list price of nearly £18k. The leasing co bought it for £11k and they base the costs on the £11k price. Bear in mind that two similarly priced cars may have different costs due to the levels of discount available.
As I have a young family and high bills I was happy to get a "free" car. Next time I will go for something a little more sporty.
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You get the options to buy the car at the end (just like a PcP scheme), but to keep the lease costs low the residuals appear very high. I suspect the lease co wants you to lease another car and not buy your current one.
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Re the company NI - the allowance does not hit our payroll so I dont think they do pay it.
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Can I just ask (always having been in the position of buying my own cars and pleasing myself) why it seems to be that anybody with a company car who is thinking of upgrading has to think 'BMW'?
There's a whole wide world out there, guys...
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Can I just ask (always having been in the position of buying my own cars and pleasing myself) why it seems to be that anybody with a company car who is thinking of upgrading has to think 'BMW'?
Because it's the ultimate driving machine? I had a 325 for a few wks while I was between cars and it was wonderful to drive - it's the only car I've ever driven where I deliberately took 'the back way home' just to enjoy driving it. Even my wife (who has no interest in cars whatsoever) got to like it. It's just a shame about the image.
I think, for many people, BMW is a reference point that sets the standard. They then have to convince themselves why they should buy something else, rather than the BM.
It's amazing though, how many of our company car drivers who *had* to have BMW's when the company provided them, switched to things like Peugeot 307's diesels when they opted out. Our company went mad, but there was nothing in the rules to say they couldn't do it.
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Re the company NI - the allowance does not hit our payroll so I dont think they do pay it.
They will be paying employers NI - it's the law and they can't avoid it.
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Gosh, this is all getting confusing and i know about the tax and NI aspects! I think the OP has confused some people ref the tax issues.
the point i want to make is ref the "hefty pay rise". Dont forget to factor in the change in BIK if you go up to higher rate tax. I think it switches at approx £31400 nowadays. Not sure if this is an issue (i suspect you may be in the higher bracket already based on your current tax expenditure).
Piece of mind is probabbly the biggest factor for running a company car. I changed mine for and purchased my own (a 2.4 petrol) The amount i am paying to buy the car is nearly the same as the tax would be! (the car is a couple of years old though)
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Oops, looks like i am the one who got confused!
i now see the part about the company paying the fleet people the allowance. I have come across this with a friend and it made no sense then.
so my previous point was nonsense.
Insert swear word here!
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I think I confused one person - but I must say I don't think it's that complicated - the firm leases the car, transfers the lease to you, pays you some money to pay the lease with.
I'm afraid i've been paying 40% for a while now, so had got that covered - a car tends to push you there rather quicker, doesn't it? I can vaguely remember having a positive tax code...
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ha ha!!! I have the list!
And jolly extensive it is, too, including porsche, which I've not seen on a company car list before...
Anyway - here goes:
Current car - Audi A6 2.0Tdi SE - over 4 years (looks like they can choose 2,3 or 4) is £413 a month, meaning I'd pay £53 a month extra.
Zippy - how do extras work on your scheme? Do they just divide the cost by the term? That'd make shorter leases very expensive, I guess. Anyway - with no bells and whistles I'd be about £150 a month better off than currently
BMW 530d SE over 4 years £557 a month, meaning I'd pay just short of £200 - about the same as now.
Just those extras that are an issue if you have to split the full wack across the lease - reckon between £3 and £5k on the BMW (sat nav, phone, posh lights, electric seats etc), which would be another £100 a month.
Nice to have the option of a shorter exchange period - would probably go for 3 years, making the beemer an extra £55 a month.
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think I confused one person - but I must say I don't think it's that complicated - the firm leases the car, transfers the lease to you, pays you some money to pay the lease with.
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your sums don't add up again - i.e. you have confused more than one person.
read the inland revenuw link in full and you will find that if your claim "the firm leases the car, transfers the lease to you" is true, you and/or your firm will soon get the revenue investigating you.
quote from the revenue guidance to its inppectors:
"These schemes typically rely on one of the following conditions being satisfied:
the car is made available to employees in circumstances such that ownership is transferred to the employees at the outset (see EIM23053)
ownership is not transferred to the employee, but the car is not made available by reason of the employee's employment (see EIM23060 to EIM23062).
So, in reviewing a scheme, the first point to establish is whether the employee has become the owner of the car at the outset. You only need to go on to consider the by reason of the employment condition if ownership is not transferred at the outset.
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Well in that case I guess it's a good job it's not me that has to do the deal with the revenue, but some Very Brainy accountant - they've approved it, apparently. Is the exact detail of how the tax treatment works really that important? It's obviously somethign that a lot of organisations use - Abbey, nat west and some parts of lloyds obviously do.
You're obviously quite a bit cleverer than me, but if in effect the firm uses (a) its buying power and (b) guarantees the deal then to all intents and purposes it's leasing the car and transferring it, isn't it? That's certainly how in practice this differs from the normal opting out procedure, isn't it? I don't see quite how, unless you're quite spectacularly pedantic, my description is really that inaccurate. Still - being a bit thick has never bothered me that much, and I'm not about to let it do so now.
I'm still not entirely sure which sums didn't add up though - all I can reecall asking is how much extra on top of the £360 net would one need to pay to get A6/5 Series with a biggish diesel engine - the answer came back "about £250-300 extra". Which appears to be pretty much spot on, from what I can see.
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It sounds as though the employer's who offer this scheme have convinced HMRC that the cars are not "made available" under S.114(1)(a) ITEPA 2003 by the employer. The lease will presumably be in the employee's name with early termination covered by insurance. More normally a credit sale agreement is required to evidence employee ownership of the car.
The "tax free" cash would be an estimate of monthly business mileage at 40p per mile - allowing 10p per mile for fuel would leave 30p as tax free cash, so an estimate of 1,000 miles per month would allow tax free payment of £300 per month.
The trick to operating these schemes is for the employers to have systems in place to keep track of the business mileage and perform monthly reconciliations so that any overpaid mileage allowance is subjected to tax and NI. With HMRC approval overpayments can be offset against underpayments which minimises the tax/NI bill. The employer would generally meet this tax/NI so the scheme would still appear 'tax free' to the individual.
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My allowance of £360 is actually £7200 a year extra salary net of tax and NI, I think. Not sure what they do about business mileage - but i don't expect to do much to speak of.
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My allowance of £360 is actually £7200 a year extra salary net of tax and NI, I think. Not sure what they do about business mileage - but i don't expect to do much to speak of.
I guess this is where the scheme could fall down for the empoloyer - they would expect to retain your business mileage tax rebate. The worst scenario would be someone who did very high private miles - the company would have to pay the excess mileage charge but would have no tax refund to offset it.
I think the assertion that these eco schemes are approved may be overstating it a little. You have to register any tax avoidance (note - not evasion!) scheme with HMRC and they keep a close eye on it. An indication of how dodgy it might be is TSB's statement on their website that they 'have recruited consultants from the main four accounting firms, with nearly 30 years Inland Revenue employment between them'.
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