employees who are offered a car allowance have a number of ways to use it or spend it. there are benefits to keeping your own car and using your allowance for the running costs and car repayments, or to buying yourself a new car.
we’ll help you make the best choice that will either reduce the repayments on your current car and help you with tax deductions, or that will help you buy a new car, with all the necessary deductions of course.
contact us and let us help you work it out.
the definition of car allowance may be somewhat loosely defined.
you, the employee, get to choose how to use your car allowance, whether for financing a new car, for the repayments of your current car, or for the general maintenance and upkeep of your current car. a car allowance can be used to finance a new car and contribute to the running costs of it. or, the allowance can be used for the company car you have been given.
your employer must itemise a car allowance on your pay slip. this makes it easy for a tax accountant to work out what can be deducted from tax, or the different ways that you can benefit from your allowance.
a car allowance, while completely genuine, benefits both the employer and the employee.
note that a company car, while different to a car allowance, will likely come with a car allowance. the employee gets to benefit from both, as does the employer, but again, get in touch with us to work out the best possible way of doing this.
car allowances generally allow the user good tax benefits. if your employer is giving you an allowance, whether for your own car, for a company car or a new car, you can claim back. this is why it is so important that you choose to use your car allowance carefully and legally.
when you are given a car allowance, you get to decide how to use it. your salary and your lifestyle will often govern the choices you make.
let’s look at the options
this option means you don’t change much. you keep the car that you own and you put your car allowance towards the running costs of your car. because your car allowance is itemised on your salary slip, you will get the tax benefits.
the car allowance you are given may deem you legible for chattel mortgage finance, which is a mortgage on a movable item of property. this offer, provided you are driving solely for business purposes, is often more flexible than other offers. you, as the driver, do need to meet the application requirements, and this will depend on your monthly salary. lifestyle is taken into account too, as is length of employment.
when you discuss this option, also talk about car leases, as you may be eligible for a simple car lease. this option does offer more flexibility with payouts and upgrades, but there are fixed minimum residual values.
a car lease might not be the best option for you, but a consumer loan could be, especially if you get a good lock-in rate. for a consumer loan, you use your car as security against the loan, but you cannot borrow above the value of the car.
a tax accountant will tell you how much of the car allowance can be treated as a tax free form of income. sometimes, it is the full amount, especially if the bulk driving is connected to the business. but when it comes to submitting tax returns, the full amount must be declared. thereafter it is considered taxable income.
when it comes to taxes, you claim deductions for the use of your car as a business tool. your car allowance is seen as extra income helping you with your business or work expense. it is not, on its own, a deductible expense but you can claim costs that are connected to the financing and operating of your car.
give us a call and we’ll help work out your options, ensuring you get the best package for your needs, which will suit both you and your employer.
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