Tax Insider Tip - Company Car Or Car Allowance?

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Company cars are highly taxed and the tax burden is due to increase in future years as emissions criteria are made stricter, raising the appropriate percentage. Therefore, you should consider whether it would be more appropriate to use your own vehicle for company business.

If you decide to do this then you can claim a car allowance and mileage rate for business miles.

Depending on miles covered and the type of car, this can save a considerable amount of tax.

It also has the advantage that if you move jobs you don’t have to hand the car back.

Case Study:

Bill has a company car and pays tax on a total of £9,500 in benefit charges. He pays tax at 40%. The tax cost of having a company car is £3,800.

He travels 10,000 miles per annum on business, and the company offers him a car allowance of £6,000 per annum instead of his company car.

By taking the allowance and providing his own car, he immediately saves £3,800 in tax on the benefit charge.

With respect to his car allowance of £6,000, he is also able to claim £4,500 per annum tax & NI free mileage allowance at 45p per mile. This means his excess benefit is £1,500, on which he pays tax of £600 (@40%) and NI of £30 (@2%). So he will be £5,370 better off. 

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