Car Allowance for Directors - The Book-keepers Forum (UK)

Hopeful · Veteran Member

Car Allowance for Directors

Sue T · Veteran Member

If he has a car mileage allowance he can only claim mileage allowance on business mileage and the mileage allowance covers all the car expenses. Alternatively if he doesn't do the car mileage allowance scheme he can claim all expenses for business use only, and he needs to still keep a mileage log as proof of business mileage.

Sue

-- Edited by Sue T on Wednesday 16th of June 2010 11:37:20 PM

Hopeful · Veteran Member

Hi Sue

so if he can claim all exps for business use as he doesn't claim milage allowance - what is the £700 car allowance for which he gets every month....... is this an extra benifit?

Shamus · Forum Moderator & Expert

What does the director actually do with this money?

Is the director using his own car?

Is this the case that the director is taking the cash as an alternative to being given a company car?

You need to look at booklet 480, the benefits and expenses guide, (http://www.hmrc.gov.uk/guidance/480.pdf) specifically section 11.11 which specifically talks about cash alternatives to a company vehicle (tried to cut and paste it but for some reason it's not allowing me).

The guide quite clearly states that the allowance forms part of the employee's remuneration for tax purposes. (Directors are employee's of the company).

My belief is that in this instance the allowance forms part of the taxable remuneration package of the director but a tax free allowance for mileage would still be available for business mileage at 40p per mile for the first 10k miles, 25p per mile there after.

A log must be kept of all business mileage to legitimise every mile claimed.

Note that this is NOT a case that the allowance could be set off against the mileage. It is completely seperate and should really be treated as though the director has current salary + £8400 p.a. increase in salary.

RuthA · Senior Member

My husband (not a director, but employee of one of the big banks) has a car allowance and claims mileage each month at the rate his company has decided (in his case, 13p per mile, but of course it could be up to 40p for the first 10, 000 miles before attracting tax). The car allowance is really just a part of his salary - it doesn't matter what it's for, it is treated the same as bonus payment, London weighting and any other portion of salary.

However, you say that the director is claiming for petrol and servicing actually paid rather than claiming a mileage allowance. My understanding is that this is not allowed for an employee , it has to be a mileage allowance. This is how it reads in booklet 480.

Hopeful · Veteran Member

Shamus wrote:
Is this the case that the director is taking the cash as an alternative to being given a company car?

Note that this is NOT a case that the allowance could be set off against the mileage. It is completely seperate and should really be treated as though the director has current salary + £8400 p.a. increase in salary.

Yes he is taking cash as an alternative and the allowance is being treated as salary + increase through the payroll.

my question is should I be putting the company credit card receipts through as legitimate company exps or should he be paying back expendure incurred on the credit card?
because it looks like he is getting £8400 p.a increase + whatever he spends on the company credit card for petrol repairs etc?

Not sure if i'm making myself clear or not but I will look at booklet 480 thanks Shamus

RuthA · Senior Member

No he can't just have whatever he spends on the credit card.

The easiest thing is for him to claim 40p allowance per business mile travelled (as evidenced by mileage log). He could claim less, of course, but anything over that is taxable so it all needs to be properly recorded.

Hopeful · Veteran Member

I'm still trying to get to the bottom of this!!

lastest advice is for me to ask the director to log all mileage and to take out all invoices relating to petrol & repairs ect from the company accounts as they are not legitimate expense and for the director to pay the company back with everything that had currently gone through the books???

Does that sound right to anyone if so my proposal for him would be to open a loan account for him and make monthly deductions from his salary??

BackOfficeGroup · Guru

A car allowance is paid via the payroll for tax purposes so increasing the salary in effect each month. This is usually done to avoid having a co car on the books. Whether the employee buys a car wiht it or not does not matter - its basically just an increase on salary.

As the emplyee uses his own car for business purposes, he should then put in for expenses for mileage/parking/tolls only. Repairs and the like are not claimable, as the mileage rates are there to cover fuel, wear and tear.

The allowance is up to 40p per mile for the first 10000 miles and 25p thereafter. This is only a guide and an example is we pay 25p per mile regardless, which when you work it out at current prices, most people make money out of it! Its only if you have a gas guzzling Ferrari or something that it may just cover your cost at 40p!

For most small Ltd co's, the Directors will claim the whole 40p per mile, as its their company.

P

Hopeful · Veteran Member

Hi P I understand that now my concern is the director is giving me receipts from the company credit card for repairs,petrol mot etc for his car & i'm putting them through as books, what do I do going forward ask him to stop using the card for his car's repairs or just put them in his loan account??

as he gives me expense sheets every month anyway he should record any mileage on that.

semsley · Guru

Put them through his Directors current account

BackOfficeGroup · Guru

its about education, as they see at their own money but its not, it belongs to the company. They need to undertsand an Ltd is an entity in its own right and therefore they need to treat it that way. There are ways round things but they have to stop treating them like their own pocket.

I would use Directors current account also for their mis-spending!

P

Hopeful · Veteran Member

Thanks Guys I knew it shouldn't go through as legitimate expenses just wasn't sure how to tackle it.....getting him to stop is another thing!!!

I've just joined the company and yes he does seem to think the company credit card is an extension of this personal bank account!!!

Just to finsh with what seems to be a silly question - do I set up a directors current account in the bank window and just transfer the mis spending into it???

semsley · Guru

Stick it in the liabilities if you're using Sage it's the 3000 range.

Hopeful · Veteran Member

Thank you all very much for all your help much appreciated.

blondie · Veteran Member

Yes, thank-you all..this has cleared up a few things for me too!
Glad i was browsing!

Cheers

Bookkeeping Services · Newbie

Hi,
The car allowance should be included in the directors salary and credit card parenting to car repairs/fuels should be shown as directors personal drawings.

-- Edited by Bookkeeping Services on Tuesday 20th of July 2010 04:13:49 PM

Hopeful · Veteran Member

THat's what I've done, but also gone back to the the beginning of their financial year and taken everything out that doesn't relate to the business as a legitimate expense....he's not happy!!! I feel better about it.

Beverley · Veteran Member

Hi All

I have a director who currently receives a car allowance, he is now looking to take out a contract on a lease car.

Does the car allowance still apply or does this stop when the contract is signed?

BackOfficeGroup · Guru

Beverley

Is the contract in the name of the Ltd co or personally?

A car allowance is just another way of increasing the salary. If he contracts a car via the Ltd co and still wants the money, just add to his basic salary and do not call it a car allowance. Its really only called that generally for sales guys who see it as a benefit, there are no tax benefits at all, as it goes through the PAYE as normal.

P

Beverley · Veteran Member

Hi P

It will be in the company, So he has the option to keep it or refuse it then. that's good to know I didn't know that thank you so much.