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
Click
here for larger view
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
Click
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%.
