So, car allowance in lieu of company car. Taxable as salary as far as HMRC are concerned, with tax payable at your highest rate of tax.

But, what about NI? I’ve always assumed NI was payable on car allowance as well, but chatting with a colleague, he thought not.

If NI payable, at what rate – 12%?

Car allowance is just added to your gross salary and taxed all as a whole AFAIK – including NI
Just the same as if you got a similar size pay increase

As above re NI but you may be entitled to a rebate at the end of the year depending on what rate your firm pay for mileage. IR will rebate over paid tax if you are paid less than their current rate which I think is 40p up to 20k and 25p over 20k…

So if there’s no tax advantage, why do car allowances still exist? Why don’t employers just wash their hands of the whole kerfuffle and pay a bit extra in cash? I’m obviously missing something but what? ❓

Why don’t employers just wash their hands of the whole kerfuffle and pay a bit extra in cash?

That’s just what it is, the fact that it may say ‘Car Allowance’ on your payslip is neither here nor there

I’m obviously missing something but what?

Employers NI contribution won’t be paid (I think), no employers pension contribution on this part of the payment, it’s easier to remove an allowance than it is reduce someones salary. There are quite a few reasons and probably quite a few more that I havent’ thought about.

40p up to 20k and 25p over 20k…

45p up to 10k and 20p over and above in any tax year, if they pay less you can get the difference (at your tax rate) back from HMR&C.

Employers NI contribution won’t be paid (I think)

Looking at mine

I get Salary, Fuel allowance and Car allowance

The columns for Gross Salary, Earnings for Tax & Earnings for NI are all identical and are the sum of the 3 above

thanks for setting me straight b r…

Yes – car allowance isn’t pensionable.

So I currently pay NIC on my car allowance…

But wouldn’t on a company car itself? – just the BIK tax?

And NIC rates? is 12% correct – the NIC tables on HMRC website were very confusing. I always thought NI was 10 or 11%