Originally Posted by
Magnum PI
you will only be able to claim:
40p for the 1st 10,000 business miles travelled and 25p per mile thereafter as 'allowable expenses' as you wil be using your own car for work.
The company can pay whatever rate they agree with you, but below these rates you can claim tax relief. Above them you pay tax on the surplus.
Originally Posted by
Magnum PI
company provides a car worth 'say' 20K and the car has a Co2 rating that put it in the 20% tax bracket, so the 'taxable benefit' to the employee is 20% of £20K = £4000.
The employee is a 20% taxpayer, so the tax payable on the benefit is £4000 x 20% = £800 per year in tax. So that employee has £20K worth of car on his/her drive for £800 per year!.
contrast that with the company giving the employee an extra £500 per month in their wages instead of a company car. the £500 is taxed via the pay packet at 20%, so again if the employee is a 20% taxpayer £500 x 20% = £100, so after tax, the employee has £400 net to go out and buy a car, tax it, insure it, run it for business etc etc...not quite a good deal is it!!!.....
Your calculation is correct at the basic level but...
... the £500 figure you have used is entirely notional - the employer could offer significantly more or significantly less. Without knowing the amount it is impossible to say if he is better in or out of the scheme.
And if the driver is a higher rate tax-payer the figures change significantly again. And the car benefit or the car allowance could determine if the driver trips over into the higher rate band.
Also, you haven't mentioned the NI contribution that will be payable on the car allowance (which is why salary sacrifice would be a benefit), or added in the mileage payments he is to receive, or the value of the BiK tax that he will save by giving up the company car (a little less than £67pm on your example above).