car allowance

by **philipord** on Thu Nov 17, 2011 11:14 am

Hi, I have recently started a new job - i get £5100 per year as a car allowance - am i taxe on this - i am not a high rat tax payer
regards

by **pjclar02** on Thu Nov 17, 2011 12:18 pm

Hello there

If you are paid a car allowance for using your own vehicle for business purposes it is essentially treated as additional salary. Unfortunately this means that it is liable to PAYE and National Insurance as part of your gross income. If you are a basic rate taxpayer you will lose 20% PAYE and 12% employee National Insurance.

Depending upon how many business miles you are likely to undertake in your own vehicle, it may be more beneficial for you to negotiate with the company that they reimburse you a fixed sum per business mile travelled, which would then be tax and NIC free. They can reimburse you 45p per mile for the first 10,000 business miles and 25p thereafter.

You would need to estimate how many business miles you are likely to travel and calculate which would be best.

Hope this helps.

Paul