Car Allowance - How does it work??


Defo worth the wait :)
Apr 9, 2006
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After a bit of advice please guys.

Someone I know has been offered a job where they have said they will get a £3600 car allowance which will be paid as part of their monthly salary. They dont have a fleet scheme so what can be done? Can they carry on using their own car and pocket the money then claim the fuel back.....or can they get a car on a monthly scheme, if they do this do they need to pay anything out of their own pocket.

I couldnt really find any simple information that i could explain so any advice would be appreciated

Oh and any info or advice on tax implications would be great too.

If it is paid as part of his monthly salary it is treated the same as normal income when it is taxed. So although the company have called it a car allowance, it is cash he is receiving. It may be the company expect him to travel for business reasons, in which case he will only be able to claim the company car rate for mileage which is about 11p a mile for a diesel.

If they supplied him with a fleet car, then the tax is worked out based on the C02 emissions and list price of the car.

Your friend is getting cash effectively, so can keep his own car but must be prepared to use it for business travel. Depending on his job, he may need to let the insurance company know.
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In my experience the car allowance is instead of a company car. It's taxed as if its just extra cash in the wage packet. Depending on mileage to work etc might be ok. You can generally charge back work related travel (not the commute) at a slightly higher per mile rate than a company car owner can as its the car is nothing to do with the company (could be persons existing car for instance).

It was a fail for me as my commute is sill and the loan payments and servicing / tyre costs outweighed the monthly extra income so plumped for company car the following year.

Existing or cheap car is the only way to make it work I think as might be quids in.

Also need to consider that might need to tell insurance that car may be used for 'business' - but shouldn't make a big difference to the premium
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I get a £4250 car allowance and can claim business mileage at 45p per mile, excluding commuting.

We have no restrictions on the age or value of the car.

Some companies insist on a car to be 3 years old maximum, but mine don't.

I just treat it as part of my wage, and always have done.
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i get €11000 pa car allowance and 25 cent per mile, i do 30k mls every year and change my car every 6 monthsm car usually costs me €500 to €1000 per year.... win win i reckon

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