Let’s take an example:
VW Golf Blue Motion 1.6 TDI 105PS £18,860 Diesel CO2 99g/km
Using the HMRC calculator http://cccfcalculator.hmrc.gov.uk/CCF0.aspx
Tax Liability indicator: 20% 40%
Company Car Tax (2012/2013) £490.20 £980.40
Company Car Fuel Tax (2012/2013) £488.80 £977.60
Total £979.00 £1,958.00
If you (the employee) pay for your private fuel you won’t have to pay tax on it.
The Employer will need to pay Class 1A National Insurance on the benefit in kind
Car benefit charge (2012/2013) £2,451.00
Car fuel benefit charge (2012/2013) £2,444.00
Class 1A 13.8% £675.51
In addition the employer will have to fund the purchase of the car based on this link the interest will be at 4.5% http://www.volkswagen.co.uk/#/new/golf-vi/which-model/compare/483/ over 36 months that’s a cost of around £3,572.30 in total
Assuming the car is purchased rather than just hired, to offset Depreciation your employer can claim Capital Allowances based on CO2 emissions:
Capital allowances treatment of expenditure
Over 160 grams per kilometre (g/km)
|Goes into the special rate pool and qualifies for writing-down allowances at the rate for the special rate pool, currently 10 per cent per annum.|
160g/km or less but more than 110g/km
|Goes into the main pool and qualifies for writing-down allowances at the rate for the main pool, currently 20 per cent.|
110g/km or less (but note that the first-year allowance for cars in this category is due to expire in 2013)
|You can claim up to 100 per cent allowance in the accounting period when they were bought, the balance (which may be nil) goes into the main pool in the next year.|
So in our case the CO2 emissions are 99 g/km so 100% allowances apply, but subject to a balancing charge on disposal.
So what if your employer offered you a car allowance of £300/mth and business mileage at approved mileage rates http://www.hmrc.gov.uk/rates/travel.htm
If you were a 20% tax payer you would pay tax (20%) and NI (12%) on the extra income so net, your car allowance would be £204/mth x 12 = £2,448
Assuming you do 10,000 business miles that’s worth £375/mth x 12 = £4,500 (note that the mileage rate drops to 25p after 10,000 miles)
Less the cost of Fuel using HMRC rates http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm
Is 12p per mile so the cost is £100/mth or £1,200 per year
So overall from the employees perspective, using this example (ignoring private mileage), Net Allowance £204 plus Mileage £375 less Fuel £100 = £479 per month the cost of the Blue Motion is £320.94 a month per VW Finance (excluding the £1,886 deposit), so the allowance is a good option.
The employers NI at 13.8% on the car allowance is £300 x 13.8% x 12 = £496.80 so that’s cheaper the the Class 1A of £675.51
However, the employer losses the Capital Allowances and the Diesel would be cheaper if the employer purchased it.
Other points to be aware of are:
It is also possible with the right advice to create a salary sacrifice scheme relating to car leasing, advisors such as Dave Hedges at http://www.edge-tax.com are experienced in these schemes.
In conclusion, in my opinion, it all depends on how much the allowance is (Car and Fuel) and what car the employee needs (size and mileage), the only way to work out the best solution is by running the calculations to find out.