Is A Car Allowance Taxable?


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Rebekah Coulson Profile
Rebekah Coulson answered
This is a commonly-seen thread of discussion on forums, where confused consumers who have just been offered a new job are trying to see how perks such as a car allowance would affect their taxable income. According to HM Revenue and Customs, the car allowance that you receive can be taxed on top of the gross income that you will take home annually. However, as you can claim up to 8p a mile back as a tax-deductible expense, it can be worthwhile to review options with your employer or to see an accountant for more information. Negotiating your way to paying the right level of tax to HMRC can be nothing short of a minefield at times!

For the self-employed, there is currently a personal income threshold of £7,475. This means that if your car allowance and income for the financial year amounted to less than this figure (which rises every year with inflation), you wouldn’t have to contribute any tax to HMRC. However, it is compulsory that a weekly National Insurance contribution is made in the Class 2 band, and this can be submitted as a Direct Debit at the conclusion of every quarter. The more money you earn, the higher the percentage of tax you will pay on your earnings. As an entrepreneur, all of the expenses that are applicable to your business - including laptops, vehicles, rent and other capital investments, can be taken off your total gross profit in order to get the net profit which will then be taxed. As you can see, getting an accountant’s advice is the soundest way to make sure you’re firmly in the black.
Anonymous Profile
Anonymous answered
Should federal taxes be taken out of a auto allowance check via the payroll dept?  I was told that no taxes should be taken out and if they are they are to be at the supplemental wage rate,
Yes, you must pay taxes on it but you can claim your millage at the rate of 48.5 cents / mile as a deduction. If you drive about 1,000 miles/month for work then you should be able to deduct most of this $500 so that you don't pay taxes on it.

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