mightyyid

Chaps

Sound like a nonce but here's a simple question of something I have no experience of.

Starting a new job soon, and given the level, I get the opportunity to have a company car. This will cost me £4,000 off my salary, which is fine (and apparently a smaller amount than they usually charge).

Therefore, given they will provide me with a list of cars that I can choose (have no idea what these are yet), I was assuming I can go and look at a website like comcar.co.uk where there is a tax calculator for cars. I'll be at the 40% mark.

When I put in a sample car (lets say 2007 WRX SL), I see the CO2 is at 35% - which I understand. So...

Then it asks if there is to be any one-off capital contributions to be made on the car up to £5,000 - is this worth it, as I assume it will be money that I have already been taxed on?

Then is asks about annual contributions - again, what's the thought process?

This would seem to indicate if I made no other payments, the car would cost £2,975 pa in tax, equating to £247 per month.

Finally, if the company is reducing my salary by £4,000 pa, does that have any relevance on this stage of the calculation or is this just the 'figure' they have provided which provides for the cost of the car?

Finally, I assume with company cars most if not all include insurance, tax and servicing. Is that fair to say?

Thanks for helping the ignorant idiot here in the corner.

Andy

zip106

They're taking £4k OFF your salary and then you are paying tax on the car - are you mad???

Normaly, as I see it ( wife has co. car) the car should be a benefit ,in addition to your salary.
CO emissions are 35%. List price of car is ,say, £25k (doesn't matter how much you pay for the car you still have to pay tax on the list price!) you therefore pay:

35% x £25000 = £8750
40% x £8750 = £3500 pa tax which works out approx. £291 per month.

This is roughly what the wife pays albeit her car cost list £27500 ( with extras) but her car is part of her overall salary package, i.e. £XXXXX salary, PLUS car.
As I see it, there's not many £27k cars you could buy and run for £290 a month!

Normaly, all servicing, insurance, repairs, rfl et. are incuded.

Hope this helps abit.

*all the above are from what I can remember off the top of my head - some companies may do things differently! *

MattW

My last job did something similar, it was £4200 off salary and that £350(4200/12) was used to buy a car from their list. Anything over £350 pm came out of your salary.

So you will save the tax and NI on 4k which will be 2kish, therefore not taking a company car will mean an extra £166 pm in your back pocket. In zip106's example the car will cost you in real terms £457 pm (166+291). You now need to work out whether you can fund a car for similar.

HTH

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Mightyvid

The salary deduction is pretty normal for many company car schemes.

It is effectively a contribution to the company's leasing cost. The tax you are paying is efectively on the benefit of the car.

I defy anyone to fully finance/insure/tax & service a new half decent car for £4,000 a year.

In fact, its less than that because the £4k deduction from salary comes off before tax, so the net cost to you from the salary deduction is only £2,400 per annum assuming a 40% tax bracket.

Or £200 pr month less in take home pay.

No way can you fully fund a decent car for £200 per month with zero deposit.

Because you haven't paid tax on the £4,000 deduction, you cannot claim that as a capital allowance, so the tax payable will be the full amount based upon emissions, list price and and value.

In your case, the cost to you (as in out of pocket) will be £200 + £247 or £447 per month.

One off capital or annual contrubutions will reduce the tax, but also be a cost to you and will likely be pound for pound anyway, so you will not be "better off" just paying less tax as the contributions are paid from taxed income.

What you need to work out is whether or not you can insure/tax/service and finance the same car for less than £447 per month.

If its a 3 year deal, the cost to you will be £16,092.

Could you buy/finance/run your own car for that?

Also you need to find out what you mileage allowance will be with company car/versus own car. Many schemes will see you recovering say 12 p per mile for a company car but 40 p per mile (up to the limit) for your own.

If you are doing a substantial amount of business miles this may make a difference to you.

HTH

davyboy

They dont really "take" the money off though.

eg - you get 40k per per year and a company car

or, we give you 40k per year and an additional 4k to run a car for business.

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Not always.

You still need to compare the difference between take home salary without car and with, to establish what is the best deal.

If you take the car you are still paying the tax and suffering the opportunity loss of not receiving the additional £4000 gross you would otherwise.

davyboy

Maybe I should have said:

you get 40k which you get taxed on, and a company car that you get taxed on.

Or you get 44k that you get taxed on.

///\oo/\\\

Agreed (where the deal gives you the extra £4k - and not all do)

mightyyid

Fellas

That all helps. I perhaps should have said that I negotiated and agreed a salary with them before finding out they offered a company car scheme - I should have asked but I forgot with everything else on. They therefore said this would cost £4k a year - so my previously agreed salary will be reduced by 4k pa if I take the car. So in other words, I could have agreed a salary of £4k less with a car included. They are not actually taking the money off me - more that I'm doing this the wrong way round. I should have said that I get a car (which I don't need for the job - it is just a perk) which equates to £4k salary a year.

Thanks to all - this has been very helpful. I think it will be worth doing, just because it will be a perk and should save me money. I look at it that it will cost me £2,400 lost in salary, plus the company car tax. If I get a cheap car (ie good turbo diesel), since I only have a 15 mile journey to the office, plus a new car every few years, it should save me money and I have the Cobra for some fun...

mightyyid

This did help a lot - many thanks for your time. Andy

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Happy to help mate

RobEvo5

iTrader: (9)

Have similar option available to me . i.e to take a company car which is inveriably limited to certain makes and models or take a company car allowance, which in my instance is £5,600 per annum.

For me its not just question of what you might think is financially better , but also what you think about cars. I chop and change allot and get bored of cars. Most companies want you to stick with a car 3-4 years. I have never kept a car much more than 1 year, and 1 year is a long time for me.

For me its not just the money, but a question of choice in terms of motoring.

For circa 447p/m or more I would say you could buy a very nice 3 year old car, run it and pay some off the capital in the time YOU own it. If you stuck with this car for 3/4 years. You would more or less own the car by the end of 3 years and still only paid circa 447 p/m to run it all up.

Also if you hit hard times you could always do the very frugal thing and buy a cheap 3-4K car and put some money in the bank. 3-4K still get you a respectable car these days.

brickboy

A specific example -- I have a company Passat PD130 sport. The benefit-in-kind tax I pay on this is £133 per month, and of course the company pays road tax, my insurance, servicing / parts and RAC.

I pay my own fuel and claim back fuel costs for business mileage. For me it's a very cheap way of running a family barge with no worries / hassles, and in what I save on fuel and other costs I can run my bike for kicks.

zip106

RobEvo5 -
That's all very well but you have to take into account running costs.
If you do loads of miles it's sometimes not worth taking the money and buying your own.
My wife does 20 -30k miles per year and so needs servicing once, has had new tyres all round ( @£200+ each), new brakes, RFL,insurance (for ANY driver) has breakdown cover, a courtesy car when needed, an instant replacement car if breakdowns/accidents occur and zero depreciation to us as it's not our car.
There's no way we could buy and run and change this sort of car every 3 years on £290 per month.

RobEvo5

iTrader: (9)

True but if you take the company car allowance less tax, and weigh up against loosing the allowance and the tax you would pay on the compay car, its probably more like £400+ not £290 pounds you mention.

Also most company car allowance schemes also pay you 40p per business mile you do on top of your company car allowance.

No you don't have to worry about depreciation when you have a company car, but thats only because you never own it or ever will. So your paying £290/£440 a month and have no asset to show for it.

Say you doing 20,000 business miles a year x 40p = £ 8000 per annum just in what you company will pay you on top of your car allowance say in this instance which is £4000.

Its different for every person depending on the scheme and how many business and private miles you do. But I would argue a company car allowance should work out better.

One of the accountants on here probably has a spreadsheet which will prove me wrong, but that will only because they base there model on buying a brand new car, and not a second hand car that wont need main dealer servicing or depreciate like a new car will.

I view a company car versus a company car allowance the same as say renting V's a mortgage, i.e dead money.

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But you need to take into account the "value" of having a new car with zero unknowns and therefore zero hassle against owning a second hand car with 100% responsibility for everything from insurance to servicing to repairs.

Its horses for courses, but its not just the raw cash that needs to be taken into account.