As someone, somewhere on STW knows about (has an opinion on?) everything, tell me about car allowances :

I’m looking at a new job which has a car allowance as it requires some travelling about the place. At first sight my choices appear to be :
1) Spend all my money and buy a car, using the allowance to repay myself (+ve minimal risk, I own the car, -ve spending all my slush fund, I own the car that has a lot of business miles on it)
2) Get a big loan & use the allowance to pay it back (+ve I own the car at the end of it, -ve big loan for 3 years which would be an issue if I get made redundant (again))
3) Get a lease car (+ve brand new car every 2 years, -ve no residual value, probably tied to a 2 – 3 yr lease)

Do you get taxed on the cash amount? at normal income tax rates? or on the car?
If say I spend £200 a month on a ford focus, can I pocket the rest?
Do you normally just get given the cash and a minimum spec for an acceptable car and told to get on with it? or do you claim back the allowance with receipts?
It’ll have to be the family car so we’re talking ford mondano territory, nothing flash.

As I see it, the allowance has no real cash value to me and could even cost me as I’ll go from having a fully depreciated 15 yr old 170k mile car in the drive to having a brand new rep mobile that depreciates like buggery!

Crikey, that’s a lot of questions now I’ve re-read it!

You get taxed on an allowance.
Mine does not cover what it costs me to do the 20k a year for work… 🙁

I have had a car allowance for several years having done 20 – 25k per year. It is taxed as income and simply appears on my pay slip separately. Initially I put down a deposit on a 2nd hand Mondeo(!) and then paid back the 0% finance balance from my car allowance each month. I also was disciplined enough to transfer the post-tax car allowance into a separate bank account to cover running costs and eventually the balance on a new car.

My company did not give any guidance on a minimum spec and to this day I haven’t upgraded the car. In addition I do get a mileage expense paid at £0.16 per mile which is not taxed. The taxman allows up to £0.40 per mile for using your own car for work so I have always claimed the tax back on this difference each year – that amounted to £800/£900 tax rebate on the mileage I was doing.

So long as your company don’t insist you drive a fancy car and/or change it regularly I think it is a great idea. If you lose your job you’ve still got a car!

I was given the option of an allowence or Company Car & Fuel Card.

I took the car & Fuel card..

Even with 40% tax, I’m still better off.

PS my car now has 140k on it

Car allowance here, as others have said goes on your pay slip as a seperate item but you are taked on it. I bought a car on interest free credit but I don’t do a lot of business miles so keeping the car long term works for me. If I was a high mileage user I would probably lease.

I had a car allowance at my previous job, they specified that the car must have four doors and be no more than three years old, other than that it was up to you.
I paid PAYE on the monthly allowance and then claimed that back on my tax return at the end of the year. Make sure you keep all the paperwork, even old MOTS, the Inland Revenue checked me out twice and wanted to see everything to verify the mileage.
I ran a BMW 5 series and ended up with 180,000 miles on the clock and just put it through the auction at the end of its life.
The only advantage I could see was that I got to choose – the company would put me in a brand new Mondeo or I could go out and buy a 3yr old Beemer and be “king” of the company car park! It was not a money making scheme – the servicing costs were eye watering.

WGA

£7k car allowance or fully expensed car were my options

I took the car coz not only would I pay tax on the allowance but I’d have to give 20% to my ex-wife (courtesy of the CSA) and no way was she getting any of that

wetgrassagain where is the option on a tax return to claim back the tax you pay on your car allowance? Didn’t know this was an option.

afaik, you can only claim back tax on the difference between your company’s mileage rate and 40 ppm, not on any other car related monies

Yeh I know about the mileage allowance but this claiming back on tax paid on your car allowance is new to me.

Ta for the info,

Just have to go home & write a presentation for the interview now & try not the make it death by powerpoint!

As said above if you take the car allowance as cash you’ll be taxed on it as cash through PAYE. If you choose to take a car through the company car scheme (as it sounds like you might be able to do) then I expect that the monthly lease cost of the car will come out of your gross salary and you’ll then be taxed on tha car as a taxable benefit based on its price and emissions. At least that is what happened at my last employer where we had a choice of taking the allowance or of spending the allowance on a ‘company car’. It’s good to get the allowance and buy a cheap car though, that way you can hopefully pocket the rest of the cash.

In response to the questions above this was 7 yrs ago so it has probably changed – sorry if I got you all excited.
Back then it was unusual to take an allowance but it was a very tax efficient way to run a car at the time.
I used to fill in the space on the tax return to claim for expenses and continue on a separate sheet with additional details.
From memory there were two ways of calculating – a flat rate per mile or a total up of the expenses you incurred.
There was a leaflet that showed you the two methods of calculating I just used to use the one that came to the most.
Long and short of it was I used to get a £7k car allowance and get the PAYE I had paid back at the end of the year in a nice cheque from the Revenue – there was none of that emissions malarkey back then, it was considered honourable to belt up and down the M6 every day!

WGA