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Company car v car allowance

The question on many site manager's lips is, 'should I go for a company car or take the car allowance and provide my own vehicle'?

 

To help answer this question, we have produced some figures illustrating the costs involved, based on travelling 10,000 miles a year, 15,000 miles a year and 20,000 miles a year.

 

To keep things relatively simple, we have made the following assumptions when working out the figures:

  • car benefit is £6000 per year attracting additional tax of £2400 at 40%;
  • client is a higher rate tax payer i.e. earns over £50,000 per year;
  • car allowance is £500 per month (£6000 per year);
  • tax relief quoted is net of our fee;
  • the cost of providing your own car is 30p per mile for the first 10,000 miles, dropping to 10p per mile there after;
  • fuel is ignored.

10,000 miles per year

A car allowance of £6000 per year would attract addition tax of £2400 at 40% and the cost of running your own car for 10,000 miles is £3000. Tax relief can be claimed for travelling to temporary workplaces which equates to £960. So, you would be £3960 per year better off opting for the car allowance (6000 - 2400 - 3000 + 960 = £1560) plus £2400 saved by not having a company car = £3960.

 

15,000 miles per year

A car allowance of £6000 per year would attract additional tax of £2400 at 40% and the cost of running your own car for 15,000 miles is £3500. Tax relief can be claimed for travelling to temporary workplaces which equates to £1120. So, you would be £3620 per year better off opting for the car allowance (6000 - 2400 - 3500 + 1120 = £1220) plus £2400 saved by not having a company car = £3620.

 

20,000 miles per year

A car allowance of £6000 per year would attract additional tax of £2400 at 40% and the cost of running your own car for 20,000 miles is £4000. Tax relief can be claimed for travelling to temporary workplaces which equates to £1280. So, you would be £3280 per year better off opting for the car allowance (6000 - 2400 - 4000 + 1280 = £880) plus £2400 saved by not having a company car = £3280.

 

 

Tax relief on mileage may not be available if you are based on one site for longer than 2 years.

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