Assuming
you have calculated the eight elements of company
car costs as accurately as possible, then you’ll
have arrived at the true cost of running a company
car. Many companies are content to pay a cash allowance
that mirrors that amount and, if your costings are
correct, then there seems little to fault this approach.
All that remains
is to remind drivers that while the allowance will
be taxable, scale charges will not apply, making
‘tax no longer paid’ part of the driver’s
disposable income.
Ideally, you
should aim to ensure that neither the employer nor
employee is financially worse off under a cash for
car policy than with a company car scheme, but in
practice this is sometimes difficult to achieve.
The tables below illustrate the main costs associated
with a small/medium sized company providing a company
car compared to an equivalent cash for car scheme.
In this example, the 'Cash for Car' scheme costs
the employer less. However, costs will vary depending
on an individual employer and employee basis.
The Costs Associated
With A Typical Company Car - Tax Year 2006/2007
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Correct at
21/02/07. Contract hire based on 3 year/72,000 mile
contract (3 months’ deposit followed by 35
monthly rentals) Inc maintenance & VAT, full
relief cover. †Assumes 50% VAT on rentals
recoverable. Total employee BiK: £3,646. BiK
saved: 21% of £16,500 (CO2 emissions of 171g/km).
Employee tax rate: 22%. NI rate: 12.8%. Corporation
tax rate: 30%. *Annual cost after tax: 70% of total
annual cost before tax rate + disallowable corporation
tax on rental. Fuel cost based on 24,000 per annum
business mileage. Price per litre 84.9 pence. Average
combined mpg 39.2.
The Costs Associated
With A Typical Cash For Car Scheme - Tax Year 2006/2007
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here for larger view
Correct at
21/02/07. PCP based on 3 year/72,000 mile contract
(Nil deposit followed by 36 monthly rentals followed
by 1 optional final payment) excluding maintenance,
payment protection insurance & VAT. Insurance
assumption as per company car. AMRs: 10,000 x 40p
plus 14,000 x 25p assuming no private miles per
year. NI rate: 12.8%.
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