For 30 years or more I have driven a company car doing high business mileage and liked the security and peace of mind on costs, despite ever increasing benefit in kind taxation. Recently some friends in similar jobs have switched to privately owned cars and say I should do the same.
The principle is that my employer increases my salary (I am a basic rate tax payer) by the same amount as the current cost to them of the contract hire, fuel, insurance etc, so they are no worse off. I run my own car and can then also claim the mileage against income tax which friends have worked out would be about £9000 a yr. based on my 30,000 buisness miles p.a. I know I have to do this at the end of the tax year by claim.
I currently drive a Skoda Octavia 1.9 diesel and would look to buy a direct replacement or similar. My annnual mileage is about 35,000 total and 30,000 is for work.
Any advice on the financial sense of this and how practical it is from those who may have made this change is welcomed, as a the current car is coming to the end of the contract period and a decision 'point' is available .
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I submit my mileage when I submit my accounts for my own company. I claim roughly the same mileage as you and therefore do not pay tax on the £9000 a year mileage.
I think its 40p for the first 10,000 and 25p for the next 10,000 and over. I swear it used to be 10p a mile for over 10,000 tho?!?
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Of course if you are an MP, can you not charge for a chauffer?
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Complete this, and it will tell you which route is best:
www.theaa.com/allaboutcars/companycartax/cashorcar...r
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I think there is a danger of miscommunication between your friend and you. You don't get £9k off your tax bill for 30,000 miles. You get 9k pre tax allowance. If you're still in the 25% bracket after the extra car allowance, the mileage allowance leaves you 25% of £9k better off. ie. £2250 back from the taxman.
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Even ignoring the gross assumption / calcualtion errors regarding tax, 2 things jump out at me:
1) 30-35K/yr can be hard on a car and in any event will destroy its value. Don't even think about opting out at that sort of mileage.
2) For basic rate tax payers like the OP, taking the company car is generally an absolute "no-brainer". It only costs half as much in tax as a 40% tax-payer for the company car and you only get half the amount back in tax-rebate for business miles if you opt out.
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Marlot, you're nearly right. But the lower rate of tax is not 25%, isn't it 22% since they got rid of the 10% band.
Either way he'll definitely only be about £2000pa better off from a tax point of view.
From my experience, some colleagues swear they are better off but every time I do the calculations properly it is about the same without peace of mind. For us we get a fixed rate per mile for fuel based on car grade and not engine size.
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Marlot you're nearly right. But the lower rate of tax is not 25% isn't it 22% since they got rid of the 10% band.
Oops - yes you're right.
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Please don't give up the company car ! Think of it as an act of charity. Company cars are great. They provide a ready supply of three year old well maintained vehicles which can be bought by the rest of us at bargain prices. Do your duty man !
;-)
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Hi Camerashy, YES, give it up. You win all round if you follow some basic rules.
Buy a decent car with a warranty and get it serviced at a main dealers through the warranty period, and beyond if you are happy. That should cover any repairs etc then buy an extended warranty if neccessary. You will have to pay for finance, servicing, tyres, tax and insurance but do the sums. At 30k miles per year you will get back £9k tax free every tax year(april to april). Surely you can run a decent car for that.
The benefits are. 1. You drive more carefully because it is your vehicle, so you get better mpg, less wear and tear and probably no speeding tickets. 2. You have the absolute choice of what you drive. 3. The personal tax benefits are great. My tax code went from 91 to 645 so you are not paying Gordon Brown for the 'priveledge' of driving a company car. 4. Put your mileage money into the highest interest account you can find, every month, and watch it build up, then it will be there when a bill needs paying. I do about 27k miles per year and came out of my company scheme 4 years ago. Best days work I ever did. Worth the bit of extra work organising your own servicing, tax etc. Go for it, Best of luck. Concrete
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35,000 miles for £9,000 a year is only 25p a mile. Is this really enough to run a car you'd want to spend 35,000 miles a year in?
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You will not £9000 extra in your salary. You can claim the tax back on the difference between what you get for mileage and what HMRC allows. Note tax back on the difference. As a lower rate tax payer this will not be huge for even 30,000.
Admittedly you will get an allowance (on which you pay tax and NI) and your allowance goes back to normal not having a company car.
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You will not £9000 extra in your salary >>
camaerashy asked the question on 23 May and seems to have gone threadshy since then!
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>>I do about 27k miles per year and came out of my company scheme 4 years ago.
I'd love to know some more details - how much monthly allowance you get, how much per mile from your company, are you 22 or 40% tax payer etc?
I've always strongly believed at that the kind of mileage you're talking about that opting out makes no sense at all, so would be keen to know why it works so well for you.
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I've always strongly believed at that the kind of mileage you're talking about that opting out makes no sense at all
It makes more sense if you get a good monthly allowance and are a 40% tax payer.
For my employer, when we opt out we get the same pence per mile regardless of car - it is based on your car allowance grade. But if a 40% tax payer, getting say £6000 extra per annum for opting out (before tax and NI), only 13p/mile for expenses and driving 30k miles per year. It might work out. Especially when you might not be paying BIK on a £20k at say 20%.
But even then I'm not 100% convinced.
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there's more to it as well
in a company car, you'd change the tyres at 2.5mm - 3mm, wheras if you are paying the temptation is to leave it longer...and it doesn't half make a difference when you get below 2.5mm
then there's minor scrapes....company = fix it....your own = maybe leave it
brand new versus second hand
dreading a few bills coming together versus not caring two hoots
worried about parking it in some car parks versus don't care
unless there was a significant financial penalty, i know which one i'd have, it'd be the company car
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in a company car you'd change the tyres at 2.5mm - 3mm wheras if you are paying the temptation is to leave it longer
not quite as simple as that our leasing company replace at 2mm, they are focussed on keeping cost down. Insurance for wife / family to drive the car is restricted in some circumstances.
However, I put a large value on time & hassle and I can live with the restrictions, I take the company car every time.
But I can see why some of my colleagues on similar money / car package choose to run their own car rather than the company option.
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not quite as simple as that our leasing company replace at 2mm they are focussed on keeping cost down.
Absolutely - and I've been through that with 4 different leasing companies. Getting the change point right is a real pain - I've taken tyres in worn flush to the treadwear indicators and the tyre fitter has measured them at 3mm - so the lease co says no.
And some of them try to fit budget tyres that I'd never dream of buying myself. Even if they'll fit premium brand tyres they seem to deliberately want to fit a different brand of tyre just to annoy you.
Being able to change tyres when I wanted to was certainly a plus factor in opting out.
Edited by Bill Payer on 11/06/2009 at 19:17
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I stay with the company car - we own my wife's car so having one that does not need worrying about suits me. And I probably would be better off opting out. But I'd be better off at the moment if I could get rid of this car and take a brand new Audi A4 SE Executive 2.0TDi 143PS as a company car too!
What people forget when opting out (and may get away with it) for example:
- Car off the road so you have to provide alternative transport for as long as it takes out of your pocket. Company would provide a hire car. When my car was repaired after an accident years ago I had an Alfa 156 for 2 months. Initial hire car delivered within less than 3 hours of the accident.
- Car stolen - you have to wait for the insurance to settle which takes time. You need a car in the meantime for work.
I know of people having opted out who then do not come to a meeting because their car would not start. If in the company car scheme we get a car within 2 hours. Period. Even if this is the middle of the night and someone opens up a hire place for us.
I actually think I'd get about £5000+ extra (well I know how much exactly) in salary for opting out. But you pay tax and NI on that.
And my tyres need replacing soon. I'll get the fitters to come to home or the office with the new tyres.
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Should add that once during a family crisis (someone ill in hospital) my car broke down on the way home. We needed a car just in case and big enough for all too... outcome was:
- RAC arrive (very quickly) and had to tow car home. Only about 2 miles mind.
- Lease company out of hours line called for hire car (now gone 9:30pm on a Friday)
- Lease company call back and say they can get car at Manchester airport and a taxi on the way to collect me
- Get car from airport etc. They upgraded me from the standard size car
- Next morning RAC come back to tow car to Ford - the dealer was passed the night before but security bollards in place.
- Ford fix car.
- I drop off hire car and get mine - the hire company will collect
The hassle factor to me wins. When my Golf was stolen the replacement hire car arrived before the police!
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I agree with rtj - I am in a position to order again in the next few weeks and over the past month or two I've been turning over the car or cash option in my head.
I couldn't afford to get a car for say £18k (Golf mk VI is top of the list at the moment) on my own,but if I take the car option, I'll get about 50 quid a month back in my pay as negative personal use charge. Also its fully maintained and taxed/insured,with the backup of Hertz if needed.
I don't fancy going into a load of debt either for any car.
I think the hassle factor nabs it for me as well, along with not having to worry about leaving it in a dodgy car park somewhere.
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I won't leave mine in dodgy car parks though.
I could be only a little worse off and get some very nice cars if I was ordering now. Or a lot better off in some as well. But my car has a few years left on the lease - shame.
But another reason to stay in. I might get bored and be able to swap!
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It makes more sense if you get a good monthly allowance and are a 40% tax payer.
There are a surprising amount of variables and so many cases are different.
We had younger drivers who thought it would be great, but then found they couldn't get approved for loans as they had dodgy credit history's, or their insurance quotes were coming back at stupid levels as they lived in dodgy areas.
One guy opted out and took personal contact hire with full maint on the same car he could have had as a company car. He got the full protection package, including cover for early termination, sickeness, redundancy etc, and it ended up costing him the same as if he's taken the company car, but he effectively worse off as he'd taken on some of the risk of uninsured damage etc!
You can make a case for it, especially if you drop down on the car - many of our senior managers who had 5 Series BMW or Audi A6's, opted out and then bought used Astras and 307s. The company went mad, but they were quids in.
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The crazy bit with our company is so many opt out and trade up. One somehow runs an M3. And swaps it all the time. He will be out of pocket but chooses an M3.
Another colleague opted out and did so many miles more than the contract for the personal lease he had to take a loan out and buy it. To give it back was too expensive. He still has it on high mileage.
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Apologies if this factor has already been discussed. In the current uncertainty many people are being suddenly and unexpectedly made redundant. It happened to a friend of mine recently. He had a company car which of course disappeared with the job. He was then faced with trying to get to interviews and so on without personal transport and not in a financial position to buy anything to tide him over. At least if you own your car and have been smart enough to pay cash for it you can't have it taken away if you lose your job.
Edited by Humph Backbridge on 11/06/2009 at 19:54
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Major reasons for staying with the company car:
1. Financing - if you need to borrow all/most of the money - forget it.
2. Depreciation - At 35k miles the car will need replacing in 3-4 years.
This means you need x amount of cash to replace the car at he end of its useful life.
3. The company will pay you a car allowance - say £5k - much of which will disappear in tax and NI.
4. Mileage allowance: while most companies pay 40p/25p for using your own car,
a large number of companies pay only fuel if you are in receipt of a car allowance.
5. All the other good reasons stated by other posters.
The car allowance is mainly suited to low mileage users with "perk" cars,
and allows perk drivers to upgrade from new company Mondeo to private used Jag/BMW etc which is out of their band in the company car policy.
My rule of thumb is : total annual mileage > 25k - take the company car.
Note: New hmrc rates for fuel from July 1,2009
www.hmrc.gov.uk/cars/advisory_fuel_current.htm
Edited by NVH on 11/06/2009 at 20:09
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Apologies if this factor has already been discussed. In the current uncertainty many people are being suddenly and unexpectedly made redundant. It happened to a friend of mine recently. He had a company car which of course disappeared with the job.
another side to it Humph. Your friend could have been landed with a lease/loan payment charge each month, which he wouldn't be able to afford with no job. At least with the company car set up he could give it back with nothing hanging over his head and make do with public transport for a while, however inconvenient.
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