Just a few observations to kick off. I can give you exact calculations when I have a bit more time and information.

This method of car allowance is just about the least efficient, tax-wise, that I have ever seen. Your employer needs to take advice from a competent advisor. Fast.

The tax you will pay on receiving the benefit of private fuel will exceed the value of the private fuel used to cover 5,000 miles per annum, especially in a fuel efficient car.

The car allowance of £400 per month will also be subject to National Insurance, as well as 20% tax.

The 45 pence and 25 pence tax free allowance figures are for business miles, but include the cost of fuel. You are being offered free fuel, so the allowance would be adjusted downwards. Additionally, the £8,250 that you mention is the deemed cost to you and your tax rebate would be 20% of this figure, i.e. £1,650, even if you disregard the comment above.

The true cost of running a car for 90,000 miles over 36 months will be extremely high, even in a Hyundai i40.

Have you checked out how much you will pay for Insurance, including business use? This will be a significant part of the calculation, depending on your personal situation, and could change if you rack up points or convictions as time goes by.

Trust that this helps for now, and sorry for not being as specific as you require for this exercise.

I have to assume that the employer has come to an agreement with HMRC regarding private fuel use, but 28 pence per quarter doesn't sound a lot! Is that per mile? That sounds too much! Nevertheless, let's assume that you will not be charged BIK tax on fuel (Which would cost you over £800 a year on the BMW 318d SE 4 door manual.

Irrespective of the method by which you finance the car, you must consider what the "Whole of Life Cost (WLC)" of running the vehicle will be over, say, a 36 month lifespan, and divide by 36 to arrive at a true monthly cost to you.

The car has a list price of over £27,000, but let's be bold and consider a discounted price of £25,000. The BMW salesman says it will be worth £9,000 in 3 years with 90,000 miles on the clock. That may be a feasible part exchange value, but it looks a bit rich as a true value, when you look at the current market in such cars. However, if it is worth £9000, then you will have suffered depreciation of £16,000, or £444 per month. Add financing costs of 36 months interest ( probably a minimum of £2,400) and you're now paying over £500 per month. Any offer of a magic formula PCP or HP deal that appears to be less than this value has to be fraught with danger or, more likely, a totally unrealistic future value that will leave you in deep negative equity.

You then have to service, maintain and replace tyres on the car, and the true cost of that will be in the region of £100 per month. (figures calculated by reference to major Contract Hire companies who command serious discounts on tyres and servicing costs- if you can do better, then get a job as a maintenance controller). Add your stated cost of insurance and the WLC is now well over £600 per month. (The true value of the "free servicing" offer over 50,000 miles has been deucted from my calculations)

Your £400 monthly fixed allowance is worth £272 per month after tax and Class 1 NIC. As commented above, the 45p and 25p notional tax saving will be worth a maximum to you of £137 per month (But this will be diluted as you do not pay for business fuel).

Result: The Beemer will cost you at least £200 per month in excess of your motoring income. I leave it with you.

Edited by leaseman on 05/10/2013 at 12:46

Again, I don't want to comment further on the fuel aspect of the contract as I can only assume that HMRC have agreed a formula with the employer.

The £400 per month car allowance will be classed as a "Round Sum Allowance" and, as such, you pay taxand Class 1 NICs on it. Additionally, the employer will pay Class 1A NICs at the Employer rate of 13.8%. Hence the allowance costs the employer £5,462 per annum to give you a net. £3,264 per annum as in previous post.

If the employer paid you a business mileage allowance of 22 pence per mile to cover 25,000 miles, it would cost them £5,500 per annum. But such a payment would be free of tax and NICs both for you and for them. Result: Your net income rises by £1,236 without costing the employer anything (well what's £38 ?).

Your ability to claim a rebate on the notional 45p/25p basis is reduced to 20% of a maximum £2,750, or £550, subject to the proviso in my previous post.. Add that to the £5,500 mileage allowance, and your motoring income becomes £6,050 per annum. That, to me, sounds more tax efficient and I hope you agree.