Car Allowance v Company Car

Car Allowance v Company Car

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Hi folks

Hope you can help me with this query:

We have an employee who is currently on a monthly car allowance, all above board and through payroll. Her car has just died on her and she is currently running a borrowed vehicle with a view to purchasing a new car in the new year.

We have another employee who runs a company car who is leaving at the end of this month, so the proposal is for the employee on car allowance to run this car until the lease is up in May. Her line manager has approved this and the proposal is to reduce her car allowance by the amount we are paying for the leased vehicle until it goes back at which point her car allowance will be restored to the current level. She has been told that there will be no further tax implications if this arrangement goes ahead

Is this arrangement acceptable, or does the company car still have to go onto a P11D for the months that she has it? The whole thing doesn't feel right to me as I can't see that the tax is necessarily correct and also the company is saving Class 1A NI which doesn't seem right.

Thanks in advance for responses

Replies (3)

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By Portia Nina Levin
17th Nov 2015 10:23

Yes. It goes on the frigging P11D. She is giving up taxable and NICable salary in exchange for a non-cash benefit, which will be taxable and liable to Class 1A NIC.

What you could do is continue to pay her her car allowance, and make a deduction from her net pay for private use, which equals the amount of the lease cost, but she will be worse off that way.

Who has told her there are no further tax consequences? I insist that you take them outside and shoot them immediately.

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Replying to tom123:
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By brucklay
17th Nov 2015 10:28

Thanks for the response

I couldnt really see how a P11D could be avoided, but am informed (by an operational manager, not anyone with a financial background) that this has been done before!

Just wanted to be sure of my ground before I challenge it.

The employee isnt actually bothered about whether or not they get the car - her main concern is that she is no worse off if she does but it seems likely that she will be

Thanks again

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By User deleted
17th Nov 2015 10:39

Who
You need to ask the person who made this comment:

"She has been told that there will be no further tax implications if this arrangement goes ahead"

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