Company car vs. Car allowance
May 2, 2011 | 40,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
Hello,
my employer would provide me with a company car (Audi A4, BMW 3, or similar), also for private use. Alternatively, I could receive a car allowance of approximately 1200 euros per month. This amount should cover all costs (including diesel, insurance, etc.). The annual mileage is approximately 45,000km (of which around 17,000km are private). Commuting to the office is not necessary as I work from a home office.
The question arises, what would be the most cost-effective option for me? Currently, I own a private BMW 320d, built in 2007. The purchase price was 21,000 euros (original price 54,000 euros). However, I would have to keep a mileage log, but I believe it would be the cheapest option for me. Attached is my personal calculation, which shows that a private car would be nearly 300 euros cheaper per month. However, I am not sure if the calculation is correct (assumed consumption about 7l/100km, average tax rate of 35%).
Thank you in advance.
Kind regards.
Dear client,
Thank you for your inquiry, which I would like to answer based on your information and in light of your commitment as follows:
1) Use of your private vehicle
The amount you set for depreciation corresponds to linear depreciation with a useful life of 6 years (21,000 divided by 6). With a 5-day week and a 6-year useful life of the vehicle, the depreciation amounts to €2,205 (230/365 of 3,500). The tax savings amount to €3,111. You can deduct this tax saving from the vehicle costs (excluding depreciation), with the difference amounting to €3,573 being the remaining expense on vehicle costs (6,684 minus 3,111). You have no costs in scenarios 2-4!
2) Use of the car allowance
You receive an additional €14,400 per year, of which €9,360 remains after income tax deduction. From this net amount, you cover the vehicle costs, excluding depreciation. This leaves costs of €6,684, compared to the €9,360, resulting in a benefit of €2,676.
3) Company car considering the 1% rule
Here, you save on vehicle costs, with only private use being taxed, which amounts to 12 x 150.50 = €1,806. Under this rule, your tax burden is €1,806.
4) Company car with a mileage log
If you receive a company car and keep a mileage log, based on your numbers and considering a company vehicle worth €43,000, the tax burden amounts to €1,481. Assuming a 5-day work week with 230 working days, the 8-year depreciation of the car with acquisition costs of €43,000 would be €5,375 annually (230/365 of 5,375 = €4,516.81).
Using a company car with a mileage log would be €325 cheaper than the 1% list price rule (€1,806 minus €1,481).
In your considerations, you should include that in scenarios 3+4 you receive a new vehicle financed by the employer, including ongoing vehicle costs. You have no cost risk, only paying taxes on private use, which is much lower than actual vehicle costs.
I hope I could assist you.
Best regards,
Ulrich Stiller
Tax consultant / Business economist
