car allowances and mileage rates

car allowances and mileage rates

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Our Company Directors (US based Company) asked our auditors (big 4 firm) for a view on our current Company car scheme.

Of course, to Americans, we are paying what seem to be high rates (typically £400 per month allowance and full fpcs milage rates). The auditors have now come back and said 'Yes - the allowance and the mileage rates cover the same thing (ie: servicing costs etc) and the Directors should cut the mileage rate to the Revenue guidance for Company Cars of about 15p per mile.

As the poor UK accountant having to implement this; I am about to have a revolution on my hands as I know that the allowance alone does not cover the costs of buying/leasing and insurance etc.

All of people affected are 40% tax payers and as sales people are doing 20k + miles p.a. I need some ammunition to get the Directors to be more flexible over the mileage rate; any ideas? As I used to work for a big 4 firm, I think that the advice, although strictly correct, does not a commercial view of the situation or the state of affairs in many other Companies who are paying allowances and higher Revenue rates.
chris holt

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By AnonymousUser
17th Apr 2002 11:29

It is academic these days!

Irrespective of what is right or wrong you have to realize that car allowance is an extra remuneration subject to PAYE in the normal way.

If the employee also gets mileage allowance then the employer can pay up to 40p per mile without any PAYE implications (i.e. no income tax and/nor NIC). If the rate paid is higher than 40p then the excess is subject to PAYE immediately. If the rate is lower than 40p then the employee can make a claim on his tax return for tax relief on the difference.

These days the distinction between car allowance and straight remuneration is academic unless the employee is in occupational pension scheme. One should always negotiate a basic salary (presumably this will be at the rate the employee thinks he is worth!).

Hope this helps.

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By AnonymousUser
17th Apr 2002 10:43

Look at basis on which cash was introduced
At some time your company may have analysed the pros and cons of cash v cars and the calculations then would have been based either on the employee receiving the FPCS or a smaller amount to cover just the fuel. If you still have these calculations they might be useful.

If you have to reduce the total amount the employees receive it would presumably be more efficient to reduce the cash allowance and keep the FPCS rate.

I worked at a big 6 firm when a cash or car scheme was introduced and those who took the cash were only allowed mileage at the "petrol" rate. Individuals who were not entitled to cash or car could claim at the full rate. This may explain the auditors attitude!!

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By AnonymousUser
16th Apr 2002 20:37

Get a copy of some tax tables
The FPCS rates or IRAMR rates or whatever they are called were originally set up to reflect the cost of running a car. That was in the days when mileage rates were all over the place. The rates never covered interest on a loan to buy a car but, funnily enough were supposed to include HP interest. There was a question in Parliament a few months ago where the Government admitted that the rates no longer were meant to reflect the costs of running a car.

If you want to find the average cost of running a car, the CCH tax tables have AA estimated running costs.

I am not commenting on the views of your auditors as I do not have enough facts. I am giving you a bit of background and a place from which to extract information.

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By StephenElms
16th Apr 2002 22:00

Co. Cars
A few years ago I worked for a large US banking organisation here in the Uk. @ that time I was offered a Co. car or the "equivalent" in additional salary; the salary carried a caveat that the car I purchased/leased/rented must not be less than (then) a Vauxhall Cavalier 1.6. I was able to fully buy and maintain a Carlton!

My advice: re-think the policy, especially for 40% taxpeayers(!) = less complicated P11D's, less tax and NI to the Employee, less angst to the accountant. :-)

Also remember that using your own car on business has some tax benefits......

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By neileg
17th Apr 2002 09:14

Right in principle
I think the auditors are right in principle. If you want to 'fight the case' I suggest you compare the typical amount of reimbursement with the typical running cost of the car. Should you find that the combined payments currently made equate to the cost of the car, you have a good argument for their retention. If you discover that there is an element of profit, I would expect it to be dificult to sustain the case.

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