Car Allowance

[pritesh]

Hey people,

I know this is a really daft thing to ask but can folk on here give me a run down on what a "Car Allowance" actually means. I've never had one before and I have just secured a new role that provids me with a 7K car allowance and so far in the contract all is mentions is about a fuel card.

cheers

P

[Busby]

There are different schemes run by different firms but typically you choose to take the cash as an extra to you salary and buy, insure and maintain your own car and then claim 40p per business mile driven OR have a car from work and use the fuel card to buy the petrol. They will also pay for all of the maintainence costs. Usually the company will give you a list of what you can lease for the allownace level that you have and you can opt to pay a bit extra and get something "better" if you want to.

best bet is to ask HR for the company car policy for your firm as, like I said, there are a lot of variances from one company to another.

[Booster]

You will get 7k on top of your salary instead of a company car. This will be taxed at your normal rate of tax whether it be 22% or 40%. You will need to look carefully at whether having a fuel card will be beneficial to you or not due to the Benefit in Kind tax on it. It may work out better for you to recharge the company your business miles and pay your private fuel yourself (or just fudge the figures like everyone else!!)

[sitas3]

you can only claim the 40p/mile tax-free for the first 10k miles IIRC then it drops to something like 22p per mile thereafter.

[sitas3]

[ QUOTE ]

You will get 7k on top of your salary instead of a company car. This will be taxed at your normal rate of tax whether it be 22% or 40%. You will need to look carefully at whether having a fuel card will be beneficial to you or not due to the Benefit in Kind tax on it. It may work out better for you to recharge the company your business miles and pay your private fuel yourself (or just fudge the figures like everyone else!!)

[/ QUOTE ]

Interesting though - even if you have a fuel card, you can also claim back the 40p/mile as tax relief on the business miles at the end of the tax year, yes?

[pritesh]

ahh cheers chaps!

[Booster]

[ QUOTE ]

[ QUOTE ]

You will get 7k on top of your salary instead of a company car. This will be taxed at your normal rate of tax whether it be 22% or 40%. You will need to look carefully at whether having a fuel card will be beneficial to you or not due to the Benefit in Kind tax on it. It may work out better for you to recharge the company your business miles and pay your private fuel yourself (or just fudge the figures like everyone else!!)

[/ QUOTE ]

Interesting though - even if you have a fuel card, you can also claim back the 40p/mile as tax relief on the business miles at the end of the tax year, yes?

[/ QUOTE ]

Can you? I suppose it would make sense as the 40p is that much as it is supposed to take into account wear and tear and depreciation.

[sitas3]

well that's what we're doing unless we're doing something wrong.

The fuel card is coming in very handy with the CSL = I just pay 40% of the fuel cost...

[OliFH]

This may help re mileage rates - came through on an email from my company's HR team a couple of weeks ago...

HMRC Approved Mileage Rates

As you are aware, the firm's reimbursement of business mileage rates for company car and cash benefit users are tied to the approved HM Revenue and Customs rates. The advisory fuel rate is HMRC's guideline on maximum fuel-only reimbursement that companies can pay drivers without attracting tax.

The HMRC have published a reduced, advisory fuel rates with effect from 1 March. We understand the reduced rate have been introduced because figures used by Revenue & Customs show better average mpg figures since the last rates review.

Would you please ensure that any expenses that are claimed after today should use the new rates:

New Advisory Rates - old rates in brackets

Engine Size Petrol Diesel

up to 1400 cc 9p (11p) 9p (10p)

1401 to 2000 cc 11p (13p) 9p (10p)

Over 2000 cc 16p (18p) 12p (14p)

As I understand it these are the rates for both company car users AND those who receive a car allowance - ie only those who are not eligible for either get 40p per mile...this may just be my company being tight though!

[Booster]

That is your company being tight! They have put the rates down? . When was the last review? Surely petrol prices have gone up since then?

I recharge my company 20p per mile. I pay the tax on 4p of that and the revenue are happy with me reclaiming 16p per mile tax free.

[OliFH]

Yep! They claim their hands are tied by HMRC...if they reckon more efficient engines are bringing mileage costs down they are having a giraffe!

[sitas3]

for private cars being used for business, this link outlines what you can/can't do..

http://www.hmrc.gov.uk/mileage/employee-factsheet.htm

[shark_90]

[ QUOTE ]

Yep! They claim their hands are tied by HMRC...if they reckon more efficient engines are bringing mileage costs down they are having a giraffe!

[/ QUOTE ]

My company has the same view - but they are categorically wrong. The IR say you either have a Company car or a Private car. Your "Car Allowance" could be called "Banana allowance" it doesn't matter, it is part of your salary and taxed in the normal way, so you can claim 40p/mile.

I have had this battle for 2 years and they're finally coming around to the idea that they are wrong!

[danksy]

S3bangs?

[shark_90]

Does he?

[Milo]

[ QUOTE ]

Your "Car Allowance" could be called "Banana allowance" it doesn't matter, it is part of your salary and taxed in the normal way, so you can claim 40p/mile.

[/ QUOTE ]

Not strictly true. Assuming you opt out of a company scheme which would have otherwise provided a fully expensed car and then use your £7k car allowance to buy your own car, the allowance is for the supply and upkeep of the car including maintenance etc. The only reimbursement you're then entitled to in the eyes of the taxman is fair recompense for fuel.

40p per mile is not fair recompense for fuel in the eyes of the taxman and they will tax you on it.

HMRC publish guidelines I believe to what they believe to be the maximum you can get before incurring tax.

Our company negotiate rates with the HMRC which represent a fair reimbursement to cover fuel costs.

You are then entitled to claim the tax relief on the amount between what you get and the maximum (40p/mile for the 1st 10k and 25p per mile thereafter) bur NOT the physical difference in £s.

This system is to stop companies and individuals fleecing the tax man.

If they paid you 40p per mile for 10k miles a year as reimbursement for fuel, it would fair greater than the cost of the fuel you used and a sly way for them to be paying you extra without the taxman getting his tax and NI.

Hence once you are paid over a certain threshold, the taxman wants his cut which is why Booster gets 20p per mile but has to pay tax on 4p of it.

[Chrisg]

Not sure we want to go down that route Ben...... I remember him at a meeting with several phones a different one for each girl...... I believe that was the story!

[Milo]

However if a company gives you £7k a year extra so you can buy a car and that £7k is purely to fund a car purchase (not as an alternative to a fully expensed car) then you would be able claim the full 40p (or 25p) per mile as you are responsible for maintaining the car etc.

[OliFH]

So if I'm about to move to a company where they ONLY offer a car allowance ( ) I will be able to claim 40p a mile on my personal car?

[MartzRallye]

When I was getting car allowance they gave me 25p per mile. It was rumoured the company claimed the left overs???????

[Milo]

If they say to you "your salary is £40k and but we want you to provide your own car for business use and here is an additional £7k a year to help you buy one" then you would be using a private car for business use and would be entitled to claim 40p (or 25p) per mile back from your employer without incurring tax as an allowance for fuel plus wear and tear on your car.

If they say to you "your salary is £40k and and you can have a fully expensed car however you can opt out and receive additional £7k a year to help with the costs" then that £7k already has maintenance and wear and tear factored into it as it is an alternative to a fully expensed car hence the only reimbursement you can claim is for fuel (see above). You can however claim tax relief as described above.

The 2 scenarios are quite different and have different implications. To be honest I'm not sure how HMRC would look upon the first scheme. They might view it as a way of evading tax

[sitas3]

[ QUOTE ]

So if I'm about to move to a company where they ONLY offer a car allowance ( ) I will be able to claim 40p a mile on my personal car?

[/ QUOTE ]

AFAIK the company can reimburse you up to 40p/mile for the first 10k miles without you having to incur tax.

From the HRMC website:

Approved mileage rates From 2002/03 First 10,000 business miles in the tax year Each business mile over 10,000 in the tax year

Cars and vans 40p 25p

Motor cycles 24p 24p

Bicycles 20p 20p

[sitas3]

[ QUOTE ]

If they say to you "your salary is £40k and and you can have a fully expensed car however you can opt out and receive additional £7k a year to help with the costs" then that £7k already has maintenance and wear and tear factored into it as it is an alternative to a fully expensed car hence the only reimbursement you can claim is for fuel (see above). You can however claim tax relief as described above.

The 2 scenarios are quite different and have different implications. To be honest I'm not sure how HMRC would look upon the first scheme. They might view it as a way of evading tax

[/ QUOTE ]

can you explain that in more detail as that doesn't make sense to me! I've worked at companies where they offer the option of either a car or an allowance. I've always taken the allowance and have managed to claim the 40p/mile etc.

[Milo]

But not if that allowance is for you to provide and maintain a car.

The 40p per mile etc is for use of a private car and has depreciation and maintenance factored into it.

If the £7k allowance is for the provision and maintenance of a car then you can't have your cake and eat it! i.e. you accept an allowance that has depreciation and maintenance factored into it and then claim a mileage rate which also has it factored in.

[sitas3]

so what you are saying is that if I have a separate line on my payslip which reveals how much of my monthly salary is made up by the car allowance I am receiving, then I will be subject to different rules about what I can/can't claim back? First I've heard of it (and I say that meaning I'm not not believing you..) I need to check up on this.