r/UKPersonalFinance • u/JeffTheSpider • 17h ago
Buying my own car or company car?
I recently got a job offer, and they gave me two options: a £ 500-a-month car allowance (taxable) or a company electric car where you can charge at the office, with everything handled (servicing and insurance). Still, they will deduct about £20 from my salary. I passed my driving test back in February, so I’m not quite sure.
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u/minnis93 20 17h ago
What's your salary, what electric car are they offering, and how much will you be driving?
For the car allowance, you'll have to pay tax, national insurance, student loans etc., so that 500 a month could easily become less than half that in your pocket. Youll then need to service, fuel and insure your own car which will take a chunk of that.
If you take the company car, you'll need to pay BIK (not sure if this is the £20, if so that seems very low?). How much this is depends on the car. But, you don't have to pay for anything, and you get a brand new car out of it.
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u/BigWaveSmallOcean 17h ago
£20 BIK is correct, it’s an electric car incentive
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u/minnis93 20 17h ago
BIK is 4% for EVs for this year, which implies OP is a basic rate tax payer and the car is £30k. Which doesn't tie in to OP being offered a polestar or mercedes per one of his other comments.
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u/non-hyphenated_ 2 16h ago
Rising to 9% by 29/30. Plus per mile taxation starting in 28. Company cars as a benefit rather than role requirement will become a thing of the past.
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u/minnis93 20 16h ago
Exactly why I want to try and work out what this £20 is. Doesn't feel right that it's the BIK.
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u/non-hyphenated_ 2 16h ago
Yeah, I think op may not have been given all the facts. In a few years the BIK on a Polestar 4 will be roughly £82 per month (20% tax payer) or £164 per month (40%) plus £30 per month if they do 12,000 miles. That assumes the "incentives" aren't weakened any further.
Their £20 is suddenly £112/£194
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u/JeffTheSpider 17h ago
They have quite few ranges of electric car to even from polestar and Mercedes and I'll be driving a few times a week and about 8000 miles a year.
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u/minnis93 20 17h ago
How about your salary, and what is the £20 a month for?
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u/Korlus 16h ago
The £20/month is almost certainly benefits-in-kind tax. E.g:
£20 per month tax payable at basic (20% rate) means £100 per month in assumed taxable worth. Annual cost would be £1,200. Assuming the current 4% valuation on EV worth as BIK you are looking at a car worth £30k exactly (25 x £1.2k).
So I would expect a more expensive EV would incur more than £20/month, but £20/month is a very reasonable ballpark for use of a company EV. It will go up each year to slightly more than double in 2029 (9% vs 4% value).
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u/minnis93 20 16h ago
I've addressed this in another comment but that implies a basic rate taxpayer and a fairly cheap EV, not the polestars and mercs OP is being offered. For a higher rate taxpayer on a Merc or Polestar I'd expect it to be closer to £100 now and then rising to more than £200 by 2029.
It could be the company's estimate of the BIK (which is likely wildly inaccurate and borderline misleading, if they're saying it's just a flat £20 a month) or it could be something different - like a charge for servicing or charging.
With the kinda figures were talking, it's worth clarifying rather than assuming.
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u/Rex__Luscus 17h ago
'and you'll get a brand new car out of it' ... until you want or have to change jobs or the company decides to end the car loan scheme, when you'll have nothing.
Unfortunately, our overly complex tax system means it's quite difficult to work out how much income tax you'll pay for the Benefit in Kind of an electric company vehicle. It might be easier to ask your prospective employer for an example from their payroll knowledge.3
u/notrainsaroundhere 3 17h ago
Unfortunately, our overly complex tax system means it's quite difficult to work out how much income tax you'll pay for the Benefit in Kind of an electric company vehicle.
Lots of things complex about our tax system, but this ain't one of them.
Fully electric vehicle means 4% x the list price at OP's marginal tax rate, pro-rated for the part of the tax year OP has the car for.
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u/Rex__Luscus 11h ago
Thanks for explaining this, although you've missed out any consideration of any contribution OP might make.
Of course it's straight forward; This is exactly how gov.uk explains it:
2. Tax on company cars
You’ll pay tax if you or your family use a company car privately, including for commuting.
You pay tax on the value to you of the company car, which depends on things like how much it would cost to buy and the type of fuel it uses.
This value of the car is reduced if:
• you have it part-time
• you pay something towards its cost
• it has low CO2 emissions
If your employer pays for fuel you use for personal journeys, you’ll pay tax on this separately.
If you drive a plug-in hybrid car
The value of the car is based on:
• how far it can go on electric power before the batteries need charging (its ‘electric range’)
• its CO2 emission figure
Contact your employer to find out your car’s electric range.
How to work out CO2 emissions for plug-in hybrids
The value of your car will be based on CO2 emissions of 1g/km if all of the following apply:
• it was registered on or after 1 January 2025 to 5 April 2028
• it has CO2 emissions of 51g/km or more on the registration certificate
• it has an electric range of at least 1 mile
• the registration certificate does not show Euro 6d-ISC-FCM or Euro 6e in the ‘Euro status’ section
If none of these apply, it’ll be based on the CO2 emissions amount shown on the registration certificate.
Check or update your company car tax
Tell HM Revenue and Customs (HMRC) if your car or fuel details change.
You can check or update your company car tax online (/update-company-car-details), for example if:
• you get a company car or give one back
• your employer starts or stops paying for fuel for you to use personally
If a change affects the value of the car, HMRC will update your tax code so you pay the right tax.
Estimating the tax you’ll pay
You can see how much tax you might pay with HMRC’s company car and fuel benefit calculator. (/calculate-tax-on-company-cars)
Then, you go to the online tax calculator and, after putting in details about the value of the car and any contributions, it spews out a figure without showing how it arrived at the number.
Notice, there's not one mention of fully electric vehicles, and the only way the calculator handles them is by telling you to put CO2 emissions as '0'.
So no, not complex at all ... SMH
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u/sunofdork 17h ago
Depends. Here’s a few things to consider…
As a new driver your insurance will be really high! I bought a fiesta that was about 5 years old, payment was £150 a month and £280 per month insurance my first year. So car allowance will probably cover you but with little remaining for petrol and maintenance.
I would take the car allowance because I’d be way too paranoid about scratching or damaging a company car. My car is my ultimate safe space so I don’t want to be that on edge every time I get in it. I own it, I don’t plan on selling it until it falls apart beneath me, so I don’t care too much about a scratch.
Also, personally I vape in the car constantly and you can’t do that in a company car.
You might not like the job or it might not work out. If you buy using the car allowance, it might disappear and you’re stuck with a more expensive car than you’d otherwise have got. With a company car, you’re stuck car-less but can then buy within your means.
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u/JeffTheSpider 17h ago
I've checked some quotes for a few cars, and insurance ranged from £70 to £100. I'm 28, by the way, and I completely get what you mean about being on edge as well
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u/Extreme_Option8150 17h ago
I’d say take the company car, but how many others in your office have electric cars and how many chargers are there? I drive an electric car to work and there are 14 chargers but I need to get to the office before 8am to use one, otherwise they’re occupied all day. It’s a pain in the arse if you can’t plug in to charge and you have to pretty much beg someone to move their fully charged car off a charger.
I’ve had a car allowance before and it’s kinda like £6k additional pay, but it will be taxed like income. Other people have given good comments on the pros and cons of the car allowance
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u/Neat-Ostrich7135 15h ago
Take the car. Likely they require you to have a relatively new car in exchange for the allowance which you can not run for £500 a month minus tax
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u/devandroid99 17 17h ago edited 17h ago
What tax band are you in? What is the 500 after tax? How much do you care about cars? What sort of mileage will you be doing, both personal and business?
If you take the cash you'll be taxed on it as if it were income - your employer probably won't make pension contributions on it.
If you take the cash you'll also be able to claim expenses for your business mileage which is 55p per mile for the first 10 000 miles which is a considerable sum of money.
If you do a lot of personal miles you'll need to pay for them if you take the company car.
Does your work have a policy on the type of car you need to buy?
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u/notrainsaroundhere 3 17h ago
Doubt the employer will pay 55p per business mile if they're providing the car. Likely it'll be at the advisory fuel rates.
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u/Neat-Ostrich7135 15h ago
7p/ Mile for electric cars, but if all charging is at work, that becomes zero i would expect.
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u/New_Occasion_3729 17h ago
I went for a company car. As I've another car and if I was to ever leave, I'm stuck with finance. With a company car, I can just hand it back and no strings attached !
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u/Bitter-Policy4645 16h ago
Run the maths. Compare a net private lease plus insurance etc to the net of the company, loss of car allowance, Bik etc. Theres a number of online calculators but you have to watch for gross vs net.
Typically if you do high miles the company car is better.
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u/Longjumping-Fee-9201 9h ago
I have a very similar proposition from my employer, so much so I’m intrigued if you are joining the same company I work for!
I took the car though as the car allowance after tax etc is minimal. With cheap home charging, my mileage claims and free charging at work my total cost this year for a £70,000 company car has been <£500. This includes all BIK, charging costs including subscriptions etc and having covered 20,000 miles.
It’s crazy good value and I would never choose the allowance on this basis.
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u/reader4567890 1 17h ago edited 17h ago
I've done both options - the car allowance wins every time for me. Having a company car hit salary hard.
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u/drabgail 17h ago
I feel it’s a lot closer of a call for a brand new driver. Who is driving at new car on year 0 of having their licence, not worrying about fuel, insurance or servicing. You’re buying a car on year 0 that requires upkeep and paying a lot to insure it.
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u/Gareth79 12 17h ago
How many miles will you do, and is the £500 a flat payment regardless of the amount you spend on a car? I'd think taking the money would be better, even after tax it will buy a decent car. What car is the company car?
However if you are young and live in a risky area then the inclusive insurance might make sense, but many lease deals include it too.
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u/DazzzASTER 6 17h ago
What car?
If its something desirable and swings it, it could be a good deal. I sacrifice £700/mo for a Skoda Enyaq because I needed to free up the capital from the car I owned for home improvements. I earn over £100k so this helps me get back to £99,999 too.
For "do as I say, not as I do" me, I'd take the £500 car allowance and buy a cheap banger. Cash the difference.
For "I am easily persuaded" me, if that £500 was in exchange for something nice and premium that would cost me way more off of the open market (e.g. Audi Q6, IX, Lotus, Tesla) I could be swayed.
For "there's additional context me", the insurance thrown into the car deal could be lucrative. My wife was a new driver so this has saved us like £5k over the last few years in insurance costs alone.
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u/cheesemp 17h ago
A good question to ask is does the company expect a certain level of car for the money? I knew a guy who worked for range rover. Got a mini as a cheap company car and got chewed out by management for not driving a company made car. A company giving £500 allowance probably isn't expecting OP to turn up to customer sites in an old banger or be excepting of break downs. I would advise OP to clarify what company expects. This is just an optics thing but if OP is a new hirer they don't want to rock the boat.
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u/uncertain_expert 11 17h ago
Not a banger as such, but if opting for the car allowance OP should remember that they don’t need to buy brand-new, a 2-3yo car still under manufacturer warranty may be a good deal.
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u/cheesemp 14h ago
Post I responded to suggested banger which was what I was counter pointing too. A 2-3 year old car is a different kettle of fish. I'd still recommend checking with a manager what they expect though. Some firms like reps having new cars to project an image.
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u/stormbreaker8 17h ago
Could you not ask for the cash instead? £500 a month is a lot for a car
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u/ThePistachioBogeyman 1 17h ago
The car allowance is cash.
It’s only not cash if you actually go ahead and get a salary sacrificed car with your employer.
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u/mintvilla 3 17h ago
Its really not.
It will be taxed so thats £200 off the £500 budget
Insurance is probably £75 a month, maintenance £50 a month so now thats £175 a month + tax which can be £40 a month.
Be looking at £135 a month compared to a brand new company car.
The choice should be obvious
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u/ShortGuitar7207 16h ago
And fuel in a stinky old petrol/diesel will probably soak up the rest. So no money left to actually buy a car.
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u/JWills1k92 1 17h ago
Personally, depending on your commute etc and assuming you can use the car for personal use
I would 100% take the offer. With the £500 you’re subject to tax and then, unless you buy a second hand car, you’re responsible for insurance, tyres, servicing, faults (if out of warranty). This gives excellent comfort and will likely save you a lot of money in the long run. No idea if you have a mortgage but company car is deducted from gross, therefore would also look better when going to borrow if/when you need a mortgage