You must weigh up benefits of driving a company car

Published on Friday 26 September 2008 19:26

Q I’VE just started a new job earning £40,000. In addition to company benefits, including a pension, private healthcare and a mobile phone, I was also offered a company car.

There is some driving involved in my job (about 200 miles a month), but would I be better off keeping my own car and claiming back the petrol or should I opt-in to the company scheme?

A THE use of a company car by an employee is a taxable benefit. It is classed as part of the employee’s remuneration package and he or she wil l be required to pay income tax and Class 1A national insurance on the value of the benefit. From the information provided, it is not possible to calculate the additional tax that would be due by you if the company car option was accepted and, therefore, to compare this against using your own car.

The information that would be needed to calculate the taxable value of the benefit is:

&149 make and model of the car supplied ( emission applicable);

&149 registration date;

&149 whether it petrol or diesel;

&149 whether private fuel is paid for by the company or employee ;

&149 the proportion ofprivate to business mileage;

&149 list price of the car (not the price paid by the company) and details of any extras fitted;

&#149 any capital contribution the employee has made to the purchase of the car.

The taxable value is charged to income tax at the employee’s marginal rate of tax.

Take as an example a car with a list price of 25,000 which the employer bought for 20,000.

The emissions for the car give a percentage of 20 per cent. The benefit in kind would be 5,000, which would effectively be added to the employee’s basic salary prior to calculating the income tax payable by way of a deduction through the coding notice.

You are currently not subject to higher rate tax. Any decision by you must take into account that the additional taxable benefit may result in you falling into the higher rate tax bracket.

The effect of this would be that a portion of the taxable benefit resulting from the provision of the company car would be subject to 40 per cent tax. You should obtain the required information from your employer to allow calculations to be carried out.

Glen Gilson, is head of private client & financial services, HBJ Gateley Wareing

&#149 If you have a question you need answered, write to Jeff Salway, Personal Finance Editor, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: These answers are for guidance only. No responsibility for loss occasioned by any person acting, or refraining from acting, as a result of these answers can be accepted by The Scotsman Publications Ltd