I have just got a new job and with it comes a company car or an allowance of £385 per month. Both options have an additional and identical fuel allowance that depends on the engine size of the car. The cash option involves complete freedom to buy any car I want and the cost of maintenance falls to me. If I choose the company car option, all the servicing etc is taken care of but I am taxed as a benefit in kind. What should I do - take the money or the car? Also, if I take the car, what should I buy. The job image means it couldn't be a banger and would need some image so I have been looking at BMW, Audi, Merc, VW, Saab, Volvo, Honda etc. I would prefer 5 doors or an estate but that's not crucial and I have about £5,000 capital I can afford to spend up front. I have been to the local auction to check out what you can get for the money. Any advice to all these points from anyone who has been there done that?
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Personally, Id take the money and have the car as your own. As you say, if you take the car, you'll only be taxed BIK anyway.
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Thanks for the advice, I agree but I still can't work what is the best small exec for £5,000 (not older than 7 years)
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This really depends on how many miles you will do. I do about 30k mi per year. I recently stacked up the figures both ways and the lease car wins hands down.
I have just taken delivery of a new Audi A6 (very nice) which will cost me £5061 per year - the real cost is about half that though because the cash option would be subject to tax and Nat Insurance. The deal includes absolutely everything; tax, insurance, tyres, servicing, repairs, the lot.
It is difficult to be absolutely precise because of the variables but I found by working the figures even strongly in favour of taking the cash I couldn't make it look sensible - even taking into account emission tax.
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You need to take some specialist advice. In many ways the key is, do you want to sink any of your money in? I have had a couple of company cars which were fully expensed apart from fuel. Going private, to drive a new car I would have had to stump up some cash as deposit (which I had better uses for). If I was happy driving a used, older car, then the equations become more equal but with the danger of being stuffed by the unexpected. So:
- company car & pay a bit more, but be absolutely secure that what you pay covers everything and keep the cash deposit in the bank?
- new car & inject £5000 of own money, with subsequent loss of interest etc?
- used car & possible big repair bills?
Only you can decide!
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Big Al,
The other factor I would dial into the equation is what happens if you don't get on with the new job, or the new company does not get on with you.
Depressing thought I know,but in today's economy it cannot be ignored. Of course you can cover payments with insurance, but I would suggest you need to have thought it through and have a contingency plan.
Having said all that, Mike H is spot on in that you do need to get advice esp on the fuel element. You will need to be doing a lot of private miles for that to be worthwhile. For most folks the company and they lose out, the only winner being Gordon Brown.
Good luck in the new job by the way.
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I was faced with exactly the same decision 4 years ago. I took the cash option and bought a car costing £15000. The car is now worth about £6000. I've had a bit of bad luck with the car and had to pay out for a couple of hefty repair bills. If I could turn the clock back then without a doubt I would go for a company car. An allowance of £380 a month is not much if you have to equip yourself with a prestige car. The servicing costs alone for the makers you mention are not exactly in the budget range are they?
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I was pretty much in this position about three months ago (I have no fuel allowance) - £5001 pa car allowance (gross) or option of company car through assisted lease scheme. Given that the allowance was not overly generous, especially when you consider the costs of private car ownership besides initial purchase.
I worked out that I would pay less going for the assisted lease than I would by having the cash & having to pay tax on it, then buy myself a car. I was not in your position of having some of my own money available to put towards it.
I’ve just got the quote through for the car of my choice (Skoda Octavia 110bhp TDI estate) & the fact that I can buy in in four years time for £2,366 also made it a fairly attractive proposition.
Matthew Kelly
No, not that one.
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If your car allowance is taxed, don't forget to include in your computations tax relief on the mileage you do on business in your own car.
The current rates are 45p per mile for the first 10,000 miles each year and 25p per mile for any additional miles.
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Sorry... should have used the preview option!
Should be 40p per mile for the first 10,000 miles.
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Taxman once told me I can't claim via this method as I have a fuel card for work and private use - the 40p per mile takes account of fuel costs I believe.
Accountant friends tell me that everyone will claim by this method for next tax year, adjusted somehow to take account fo fuel paid for by the company.
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The way I have always calculated this is first to work out the Tax implications both ways. See www.inlandrevenue.gov.uk/leaflets/c1.htm
for all you need.
Your allowance will be taxed at your top rate, but you can get some back by either by the 'simple method' or the actual method.
Obviously a company car is taxed too. Estimate both, it's not difficult.
This leaves you with how much of the allowance you are left with (say £300) and how much tax it costs you to take the 'free' car (say £200). So in this case you can either have a company car, or have an extra £500 per month in your salary.
Then add up estimated annual costs, including the lost interest on whatever you spend (e.g. £5,000 at 4% = £200), or the interest on whatever you borrow. Plan on 20-30% annual depreciation. Put in the top AA/RAC cover. Compare to your £6,000 pa over, say 2 years.
My opinion is that the risks of something going badly wrong balance out the benefits of driving a better car that you can change whenever you fancy.
£5k will buy a nice 90k Saab 9-5 on a T plate, perfectly respectable. For what it's worth I have always taken the cash and had better cars, changed when I like, for less money.
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You're on the money I think. Might be trying to get something a little lighter on the miles than 90K. Is it possible to pick up a BMW 3 series for 5-6 grand with 50-60 on the clock?
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Big Al,
No, I don't think you'll get a newish BMW 3 series with 100k and it's got proper service history (as most company cars do) then it'll be ok.
I'm not in the privileged position to have a company car :( but I don't envy you the decision.
Good luck
Pat
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Personally i would have the money!
I had this dilemma earlier this year and i chose to buy a 150GTI TDi golf. I take home the same each month as you for your car allowance and the amount you save on tax each month is very worth while. The other 15 people in our company have opted out and we are all quids in! The golf comes with 3 yrs warranty and the diesal version lasts for ever! No need to worry about maintenance as you'll probably get rid of it in 2 to 3 yrs!
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Lots of posts here are focused on the money side of things. When I made a similar choice recently, I focused on picking the car I liked the most (IS200) and the method of ownership that would cause least hassle (company car).
I could have done the sums if I'd wanted to (I'm a management consultant and sometimes advise companies on their car schemes) but I'm not sure that getting the best deal is always the most important thing...
Enjoy the car you do choose!
Some peterb postings come with an implied frown
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oops!
forgot to remove signature - sorry!
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Absolutely agree. I'd always come at this from the other direction. The only reasons I'd buy my own car are:-
1. If I couldn't get a good enough car within the limits of the scheme.
2. If I did a low mileage.
3. If I never had to worry about where it was parked.
What's a bit of tax against having the car you want insured, serviced, and fixed the minute anything happens?
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