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car allowance v mileage

car allowance v mileage
Dear all,
I am trying to complete an analysis of the financial impact on employees being switched from a car allowance of 10,000 to reimbursement of milege.

I know the employees cannot get both, but will someone be very to assist we with pointers as to go about this?

Many thanks


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31st Jul 2010 15:45


First of all, i see no reason why employees cant get a car allowance and then claim mileage. Call it what u want but car allowance is basically just additional salary, it is taxed the same.

U then need to compare the net car allowance (ie after deduction of tax and nic) against the mileage allowance claimable.

The main problem i see is that the employees receive the car allowance and this covers the business and private use of the car. The mileage allowance is only claimable on business miles so they may feel they are losing out.

Only once u have prepared calculations showing them how much they will receive in mileage allowance may they change their mind!

Good luck!


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01st Aug 2010 03:53

A little more detail

Car allowance should be taxed and put through the payroll. It's just extra salary as stated above.

In addition (if the employer desires) he can pay a mileage allowance for business journeys. The tax free amount would be up to 40p per mile for the first 10,000 and 25p thereafter. To justify this the employee would need to provide mileage claims on a regualr basis. If the employer chooses to pay less - say 15p to cover business fuel only (as the car allowance effectively meets the fixed running costs) then the total amount received as mileage payments is not taxable, and the employee would be able to make a claim for a further 25p per mile in tax relief - thus obtaining effectively a refund of tax (but not NIC) on his car allowance. Many employees are not aware of this and lose out on the extra tax relief.

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By ksalter
01st Aug 2010 09:51

company car v own car

This is just one of 100+ tools on 2020/BBS Computing Tax Tips and Tools - others include Should I Incorporate?, CGT calculators, Tax Credits.....




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By fndeloh
02nd Aug 2010 11:52

Car allowance vs mileage

many thanks Rebecca and the rest ,

The client is trying to get an an analysis of the financial impact of employees being switched from a car allowance of 10000 GBP (net, grossed up for tax) to reimbursement of milege and are hoping to proof to the employees that the switch over will not impact on hem adversely.  

So i believe an analysis  analysis of 40 pence per mile v the allowance will help.

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