Any Friendly Accountants Out There?

Pross

Can anyone tell me if an employer will pay out more in tax / NI if they were to pay an employee a salary enhancement in lieu of providing a company car? For example, if I am entitled to a company car with monthly cost to the company of £450 would that cost them more / less than a £450 per month gross increase in salary?

My understanding is that the Employer pays Class 1A NI on either but in the event of the car being provided this would be based on the BIK for the car whereas it would be on the actual amount if a salary enhancement was payable. Therefore, in the example it would be cheaper for the company if the BIK of the car was less than £5,400.

Reason for asking is I've currently got a company car but I have a car sitting at home on my drive paid for so if I could use that and get paid an allowance it would be a big benefit for me. The company have traditionally refused to provide the option of an allowance and I am trying to consider any arguements they may have against it.

keef66

Good question! I am in a similar position so I'll keep an eye on your thread.

(Slightly concerned that 2 hours has passed and no accountants, friendly or otherwise, have pitched in)

andy81

As far as I'm aware, that's correct - there's probably come guidance at www.hmrc.gov.uk

The advantage with providing the car is that if low emmissions cars are offered, the employer's costs are reduced, as the BIK can be much lower than the equivalent cash allowance. Similarly, for high emmissions cars, the cost of providing a salary allowance can be cheaper for the employer.

Le Commentateur

Tax based on BIK will be partly based on the list price of the model, yet the company may have obtained the vehicles at a trade discount -- basically it saves them a bit of money to give you the car than a salary increase.

Slow Downcp

There's not a great deal of difference to the company just on the salary/car allowance. The company would also save insurance.

Where the company could lose, is dependant on their mileage rate paid for business use, and how many miles claimed. HMRC allow 40p per mile for the first 10k miles p.a. tax free, but the rate given is fully up to the company. If they only pay 309p, you can claim the other 10p tax relief. If you do a lot of miles though, they're going to have to pay a lot more than the fuel would cost on a company car.

The biggest problem now with cash for car schemes is Health and Safety Bull****. The company owe you a duty of care whilst you are driving on business, even in your own car. So it is up to them to check your licence (which they should do regulalry as a company car driver), chekc you have valid business use insurance, that your car is MOT'd and even servicing in accordance with manufacturers guidlines. If you had an accident whilst on business, and killed or injured a third party and it was found that you had an illegal tyre, the company is liable.

pdstsp

As an accountant - also bear in mind that you will pay employees NI on any increased salary as well as PAYE. Some good points above and also some employers don't want the hassle of ever changing arrangements with lots of employees and so just go for a car or nought option. Also depnds on whether you need to do major miles for your job - they won't want people turning up at clients in a clapped out jalopy or having no back up if their car breaks down.

Good luck

Paul

UKScooby

Some good points raised above.

Another - you haven't said whether the £450 includes the service costs. Most do these days under lease, but that could be another cost.

I would probably fall down the line that the cost of providing the car would be more expensive than the same salary addition. But the other factors re you running your own car will often make it more desirable for some businesses to continue to offer the car.

And generally, in my opinion, a car is still a good benefit. Yes, its not as desirable as in years gone by, But you go and buy the same car and run it yourself for the same cost as the PAYE and NIC you pay on the benefit.

ohlala!

Where the company could lose, is dependant on their mileage rate paid for business use, and how many miles claimed. HMRC allow 40p per mile for the first 10k miles p.a. tax free, but the rate given is fully up to the company. If they only pay 309p, you can claim the other 10p tax relief. If you do a lot of miles though, they're going to have to pay a lot more than the fuel would cost on a company car.

Do remember that fuel allowance is only given on business miles and not on private usage. Daily commute to work may not be considered as business miles.

Pross

Up until now I have had the car and personal fuel allowance which has made it worthwhile. My grade also currently has a maximum lease value of £600 per month (including servicing) but this is being reduced to £475. The policy is also changing so that I have to choose a car of less than 120g/km CO2 so choice is reducing (my current car is already in this category but is too small to be practical for the family as the kids are getting bigger!). We are losing the private fuel benefit which is the bigger benefit to me and will be paid 15p per mile for business mileage. As we would be paid an allowance for the car I would take that as being to cover wear and tear, servicing etc. and assume the same rate would be paid with an allowance.

An allowance is making more sense to me as we have a second car sitting on the drive doing nothing except when we need to use it for towing so I wouldn't have to fork out anymore and as I don't use the car for business that frequently I would then have extra cash to cover my loss of private fuel and / or pay for public transport (or buy yet another bike ).

The H&S angle has been used in the past when people have suggested providing an allowance but is a bit of a red herring and was based on a case where an employer insisted an employee used their car when they had been informed it wasn't road worthy. It would be easy enough to have a policy in place that you have to provide regular documentary evidence that you have had your tyres checked etc. and a contract can say that you have to ensure the vehicle is roadworthy at all times or inform the management if it isn't. At the end of the day no-one checks my company car is roadworthy other than at its service every 9 months or so.

Thanks for the advice everyone.

Allez Mark

Ask a builder. What is 2 + 2 and he will count to 4 using his fingers.
Ask an engineer, and he will use a calculator to get to 4.
Ask an accountant and he will say........... "What do you want it to be".

Sorry. Leaving Now.

ohlala!

Hey accountants are complicated because we are forced to - on one hand clients want to pay tax as minimum as possible even to an extent of avoiding it. HMRC and professional bodies of which we have to be a member of requires us to abide the rules and there are soooo many of them, and the budget keeps on changing every year.