a to z of finance
Wednesday 28 February 1996
A company car is a benefit in kind, which means you pay income tax on it - albeit with special rules for calculating the benefit on which tax applies.
Tax on a company car is 35 per cent of its list price - if it costs pounds 15,000, the value at which you are liable for tax at your highest rate is pounds 5,250. The run-up to 5 April - the end of the tax year - is the time to check your mileage. If you do 2,500 business miles a year, you can reduce taxable value by a third (to pounds 3,500 in the above example); if you do 18,000 business miles in a year, you can reduce it by two-thirds, to pounds 1,750. You can also get a further third off if the car is more than four years old.
If you don't use the car a lot privately, it may be cheaper to reimburse your employer for all private fuel than to pay tax on the standard charge otherwise applied by Inland Revenue, according to the accountants Deloitte & Touche.
Increasingly, employers are offering a cash alternative. There is no simple answer as to which is better - it depends on generosity of the cash offer and your likely mileage.
C is also for commission. The stereotypical commission-driven life insurance salesman still exists, but things are slowly changing.
Recently, salespeople were paid almost solely by commission. Because of low "conversion ratios", salesmen were highly rewarded for each sale. A straightforward mortgage-linked endowment policy might pay out pounds 500, while an average regular premium pension would deliver up to pounds 1,500. Policyholders paid for that in heavy charges.
Commissions can lead to foot-in-door tactics as shifting a product becomes more important than good advice. They also create "churning", by which people are conned into dumping perfectly good policies and starting new ones.
Since last year, salespeople must disclose their commissions. Many are now paid a basic wage, plus a smaller commission, based more on the quality of the business they transact with clients. Many financial advisers increasingly work on a fee-paying basis. But problems remain.
You are entitled to know exactly how much an adviser will earn from a policy they recommend. You may also ask either to have some of that commission rebated back to you, or pay a fee instead. Beware though: at up to pounds 150 an hour, it may in some cases be cheaper to pay commission than a fee.
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