Car allowance to company car

At present I receive a car allowance in leiu of a company car. This is treated as additonally salary and usual tax and nic amounts are paid. My company want me to switch to a company car - what impact will this have on my tax? The car in question is an EV so a 2% bik rate, will I simply pay the relevant bik due each month for that car so circa £30-40 per month? I have been told this will be cost effective for me however I just wanted to double check as someone said I may still pay the tax on my current allowance as it is higher than the EV bik value

Hi

The tax due on a car allowance is typically higher than the tax you would pay on a BIK for an EV.

Thank you

 

Thank you, so by switching to the EV company car I will only pay the BIK due on said vehicle?

Hi,

Yes, that is correct.

Thank you.

Hi, I am a little confused as I have seen conflicting information online that suggest you pay tax on whichever is the higher, the car allowance or the BIK. Example, if I could receive £6,000 per annum as a car allowance but opted to take an EV vehicle with a BIK value of £1,500 I would be expected to pay tax on the £6,000 and pay no BIK tax? Can you please confirm? Thanks

Hi J-Dee,
You'll always pay Income Tax and NI contributions on the car allowance.
The car allowance amount is simply added to your salary for tax and National Insurance purposes, and the deductions will be made through PAYE by your employer.
If you choose the company car, you pay whichever is highest between the monetary value of the car allowance or the benefit in kind tax on the company car.
Employees who receive a company car must pay company car tax (Income Tax only) whereas the employer will be subject to Class 1A National Insurance contributions.
Thank you. 
 

I If I have a taxable cash allowance for a car for business and private use, what is the amount I can claim for business mileage? Thanks Paul

Hi,

If you are using your own car for business, the mileage rates can be found here:

Travel — mileage and fuel rates and allowances

Thank you.

This is a really helpful thread. I believe you have stated this by implication. However, please can you confirm. If an employee receives a Car Allowance, is there vehicle(s) not counted as a Company Car? And therefore the advisory mileage rates that apply are those for use of a private vehicle?

Hi Alastair,
A car allowance is just classed as income which the employer pays to you rather than the cost of supplying you with a company car, you are not required to spend the allowance on a car.
The employer may provide you also with mileage allowance payments for your private vehicle, if these are less than the advisory rates, and you are using your own private car for business journeys, then you maybe entitled to claim the difference in advisory milage rates if you meet  certain conditions
Expenses and benefits: business travel mileage for employees' own vehicles
Thank you.

I have been advised that I cannot put an option of Car Allowance OR a Company car in an employment contract as the employee will have to pay tax on both, despite only being able to select only one - A car allowance of £520.00 per month or a Hybrid Car. Is this correct? If they currently have a short term car then switch to company car, as long as they advise HRMC the end date for the car would they only need to pay tax on the car (BIK) OR the Car allowance? Many thanks

Hi Ceecee17,
We cannot comment on contractual matters, however if the employee is provided with a car allowance or company car these would need to be reported for tax and NI but only what they actually receive.
Thank you. 

Hi, I have just had my company car payment added to my payslip. My tax code still reflects a BIK. It has raised my total earnings Everything else is identical on my payslip but I'm £250 down on my salary. Is there any reason why ? Any reason why ?

Hi Gareth Dunn,
Please contact us here:
Income Tax: general enquiries
So we can review your tax code. 
Thank you. 

 

I currently receive a car allowance of £5250 per anum which is processed via PAYE. I was thinking of switching to a company car, specifically an EV with a benefit in kind of about £40 pcm. My employer advises that I will be required to continue paying the tax on the higher monetary value of £5250 not the £40 BIK regardless of the switch, is that correct?

Hi Andrew Streeter,
That's correct - you pay whichever is highest between the monetary value of the car allowance or the benefit in kind tax on the company car.
Thank you. 

Apologies for remaining unsure, so I would continue to pay tax on the higher monetary value even though I will no longer be receiving it? Why is that? Surely that only serves to de-incentivise switch to electric vehicles.

I should add, when my colleagues change their company cars, the BIK immediately changes to that of the new vehicle. Why would my tax liability not follow the same pattern?

Not HMRC...think people are getting confused. Youd pay tax on the BIK, not the monetary value of the car allowance. As you state, you wont be receiving the car allowance anymore, so you cant pay tax on it, just the tax charge on the BIK value (rates on BIK change regularly)

It is hard not be confused and the word 'may' below certainly does not help. Below is an extract from a guide produced by a fleet management company: 4. Other Considerations: If you have a choice between a car allowance and a company car, you'll be taxed on the higher value of the two benefits. However, if the vehicle you drive emits less than 75g/km of CO2, you may not be taxed on the higher value benefit.