What is car allowance and how does it work?

Question

I will receive a car allowance, but I dont know how this works... Will I receive all the money once or will I receive monthly? With this money I can buy a car or maintain my own car?

Answer 1

its just extra pay - it will be added to your paycheck once per month - you're supposed to use it for vehicle expenses - it's cash - use it for whatever you want - obviously fuel costs and/or car payment should come to mind immediately - remember though, you only get use of the net pay portion of it - say you're getting a $300 a month car allowance - that will only come out to about a $200 increase in your take-home pay, so if you are shopping for a new car with this extra money - keep it the payment as low as possible

Answer 2

Usually car allowance is paid by a firm for you using your own car. This is usually paid at a certain amount for every mile you travel (typically 25p per mile). This is done as a form of recompense for the cost of fuel out of your pocket. It is usually paid along with your wages, comission etc.

Hope this helped to clear it up for you.

Answer 3

Typically, but may be more.

Answer 4

Firstly I assume this is a payment monthly to buy a car rather than a mileage allowance based on distance travelled using your own car.  Often there is a requirement that you buy and maintain a car, but the specifics vary (I must have a car but my last job required that I had a 5 door diesel car not more than 6 years old)

It is effectively and extra payment in order to allow you to buy a car for your work.  It can also be used as a top up for salaries (e.g. where there is a salary structure and you're at the top end of pay for your grade).

You will be taxed on it at the tax rate you are on, and the figure is added to your gross salary for tax calculation - so if it takes you over the 40% threshold, you pay 40% tax for that part of the allowance.

The important factor is that it isn't used for National Insurance or Pension Contributions.  This is a short term benefit in that you have less monthly deductions, but your pension calculation works out at less compared to what you are getting as a monthly payment as a "salary".  If you genuinely use it to pay for your car - as I do - this isn't really an issue.

You will presumably also get a mileage allowance if you travel for work.  This rate varies but it will be less if you get a car allowance.  Typically its 40p per mile for standard users, and probably around 15-20p per mile if you already get a car allowance.  The reason for this is that the 40p per mile covers deprecation through mileage and wear & tear, but if you get an allowance, this isn't a factor.

Answer 5

I work for the local authority.  My car allowance is expenses for using my car for work.  It contributes towards the wear and tear, insurance etc of my car.  However it is only about £65 per month.  When you calculate the extra mileage you do in your car for work and how much depreciation this causes the allowance is a pittance.  I also get mileage expenses but because petrol is so expensive it hardly covers to cost.  You are then taxed on all of this.  Car allowance is not that good a perk really.