The Cash or Car Conundrum
A PVS White Paper by Daniel Tuz
Prior to the 6th April 2017 company car drivers who were offered a cash
allowance yet opted for a car were taxed on the BIK (benefit in Kind) value of
the car. Since the 6th April 2017 however, company car drivers who are offered
a cash alternative yet opt for a car are taxed on the larger of the BIK value and
the cash allowance (see HMRC’s booklet 480(2018) Expenses & Benefits).
Figures 1 and 2 compares the effects this will have on employees and employers
alike using two popular cars. The comparisons are based on a £450 cash
alternative and CCT rates for financial year 2018/19.
Figure 1 – Effects on the 20% tax payer and their employer
For the Golf, anyone opting for the cash alternative will have an increased tax
bill of £556 and there is an increased cost to the employer of £384. For the Auris,
those opting for the car with a BIK lower than the cash alternative, they will see
an increased tax bill of £214, with the employer seeing an increase in National
Insurance contributions of £148.
Figure 2 – Effects on the 40% tax payer and their employer
For the 40% tax payer the effects are double, for the Golf, anyone opting for the
cash alternative will have an increased tax bill of £1,113 with the same increase
of £384 passed on to the employer. For the Auris, those opting for the car with a
BIK lower than the cash alternative, the 40% tax-payer again sees double the
increase, £428, with the employer seeing the same increased National Insurance
contributions of £148.
In summary these drastic changes mean that employees must be extremely
cautious when opting into a cash or car scheme to obtain the best value for their
money and to avoid being unexpectedly out of pocket.
From an employer perspective, a poorly designed cash or car scheme will leave
not only the company out of pocket but also opens the door to employees
reconsidering their options.
Thanks for reading.
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