Which Should You Choose?
You’re faced with an option: a cash allowance or a company car. Which should you choose? In this guide, we explain the pros and cons of both getting a company car and a cash allowance. It will arm you with the knowledge you need to make the best decision possible for you. Many people don’t realise the full implications of being offered a car with their work. Insurance, repair liability and tax must all be taken into account.
What’s the Difference Between Company Cars and Car Allowance?
Before you can calculate the best benefit for your employees, you’ll need to know how each one differs – so, it’s not immediately obvious what the differences are between a company car and car allowance.
Car allowance, as the title suggests, is when a cash sum is added on top of an employee’s annual salary, so they can afford to buy or lease a car. A company car, on the other hand, is a vehicle that’s been provided by an employer for business use.
The differences between these benefits comes down to responsibility. Whilst the employee – the one having the car – is responsible, with a car company an employer has look after running costs.
Company Car or Car Allowance, Which is Better?
Ultimately, it’s a question of finance. Weighing up the benefits, if you’re financially able to insure, service and maintain a car, an allowance is a good way to go. It offers you the freedom of choice and gives you a cash sum, which offers flexibility. If you can’t afford or don’t want the hassle of looking after a car yourself, pick a company car and let your employer worry about it for you.
Whether your need a car to do your job, or are offered one as a perk, a company car is a nice thing to have. However, if you’re driving around in a company car, you’ll need to pay Benefit In Kind (BIK) car tax.
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Car Allowance Benefits
A company car allowance is a cash allowance that is added to your annual salary, which allows you to buy or lease a vehicle yourself. While you do not have to worry about company car tax rates with a company car allowance, you will still be taxed. Since the allowance is paid as part of your salary, it will be taxed at the normal income tax rate.
The key benefit of an allowance over a company car is that it allows you to pick the car you want rather than whichever car is in the company fleet, and you can sell it whenever you want.
Benefits of a Company Car
Company cars allow you to avoid the burdens of a financial responsibility, because nothing is in your name. If you have an allowance, you are responsible, financially speaking, for the vehicle.
Another benefit is that company cars are also insured, serviced and repaired by your employer, so you don’t have to worry about that either.
The Benefits of Electric Cars for Business Use
With tax and grants available, ownership of an eletric vehicle for business use can feel like an obvious choice to keep costs down. Financially speaking, the case for electric means that businesses owners have reduced regular running costs without creating too much of an allowance for petrol. Even the typical maintenance costs for looking after an electric vehicle are less significant than diesel or petrol alternatives. That combined with incentives available, such as the Workplace Charging Scheme (WCS), means that business owners can benefit from ongoing cost-efficiencies.
To discover more about EV grants and how eletric vehicles can benefit your business, read our guide here.
Company Car Vs. Car Allowance Benefits
A Company Car Explained | A Car Allowance Explained |
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A company car, in simple terms, is a car provided by a firm for the business and private use of one of its employees. | A car allowance, also known as ‘cash for cars’, is a sum of money that is paid to an employee, in addition to their salary, as a substitution to a company car. |
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Cons
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Driving Your Car Tax Costs Down
Car tax is one of the main factors that will affect your decision as to whether you should get a company car or just an allowance. Since early in the millennia, the car tax calculation was changed to rely on a vehicle’s CO2 emissions instead of a driver’s business mileage. This means that you can dramatically reduce the amount of tax you have to pay by choosing an environmentally friendly vehicle.
Getting a smaller car or a smaller engine can help minimise the cost of your car tax. An electric or hybrid car will also keep your car tax to a minimum. Some even face no tax charges at all. Another benefit of these cars is that you’ll avoid having to pay congestion fees, which would come in handy if you have to travel in and out of London frequently for business.
Another way you can save money is by getting a competitive insurance policy. We’d be happy to provide you with a tailored one, just click the get a quote link at the bottom of the page.
Even if you have a company car, you may have to sort out your own car insurance as your employer does not legally have to arrange it. Find out more about it on our business car insurance explained page.