| Frequently Asked Questions |
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| CAR BENEFIT - IS IT WORTH IT? |
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| Because of the changes in the car benefit charges perhaps it is time to review the benefit to the employer and the employee of providing a car. |
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Car provided by the employer |
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| The tax payable by the employee because a car is provided by the employer is as follows: |
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| 2005/06 |
Petrol Car costing £15,000 |
Petrol Car costing £25,000 |
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mid range CO2 (190g/KM) |
mid range CO2 (190g/KM) |
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£ |
£ |
| Assessable car benefit |
3,750.00 |
6,250.00 |
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| Basic Rate @ 22% |
825.00 |
1,375.00 |
| Higher Rate @ 40% |
1,500.00 |
2,500.00 |
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| The cost to an employer for providing a car to an employee. |
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£ |
£ |
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| Depreciation |
3,750.00 |
6,250.00 |
| Running costs |
2,000.00 |
2,500.00 |
| Petrol 15,000 miles @ 30 mpg (£4.10 pg) |
2,050.00 |
2,050.00 |
| Class 1A National Insurance (12.8%) |
480.00 |
800.00 |
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£8,280.00 |
£11,600.00 |
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Car provided by the employee |
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| If the car is owned by the employee: |
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| a) There is no tax payable by the employee. |
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| b) The cost to the employer for 15,000 business miles is as follows: |
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£ |
£ |
| Petrol |
10,000 miles @ 40p per mile |
4,000.00 |
4,000.00 |
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5,000 miles @ 25p per mile |
1,250.00 |
1,250.00 |
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£5,250.00 |
£5,250.00 |
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| The effect on a higher rate tax employee is as follows: |
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£ |
£ |
£ |
£ |
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| Income |
Petrol costs |
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5,250.00 |
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5,250.00 |
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Tax saving |
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1,500.00 |
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Total income |
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6,750.00 |
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7,750.00 |
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| Costs |
Running costs |
2,000.00 |
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2,500.00 |
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Petrol 15,000 miles |
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@ £4.10 per gallon |
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@ 40 miles per gallon |
1,538.00 |
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@ 30 miles per gallon |
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2,050.00 |
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Total costs |
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3,538.00 |
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4,550.00 |
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Surplus income |
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£3,212.00 |
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£3,200.00 |
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| However as has been demonstrated the employer makes considerable savings if the employee provides his own car i.e. |
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£ |
£ |
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| Employer’s costs to provide car |
8,280.00 |
11,600.00 |
| Less cost of fuel if employee provides car |
5,250.00 |
5,250.00 |
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£3,030.00 |
£ 6,350.00 |
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| A salary increase of a similar amount could therefore be paid to the employee i.e. |
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| There would then be additional income for the employee as follows: |
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£ |
£ |
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| The surplus as detailed above |
3,212.00 |
3,200.00 |
| Net income on salary increase |
1,770.00 |
3,540.00 |
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£4,982.00 |
£6,740.00 |
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| This represents per month |
£415.00 |
£562.00 |
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This would provide sufficient for the employee to lease a car. |
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