There are very specific benefits connected to providing a company car allowance:<\/p>\n
However, with fuel costs rising amidst concerns over the shift to hybrid and electric cars, the promise of a company car can come with growing costs and taxes. As such, many fleet drivers are choosing to take a cash alternative, reaching for a competitive personal contract purchase (PCP) deal instead.<\/p>\n
A company car is still considered a desirable job perk, some employers are now offering a company car allowance as an alternative to a company car. But what is the difference between a company car and a company car allowance and which option is right for you?<\/p>\n
In this guide, we explain the pros and cons of both getting a company car and a car allowance. It will arm you with the knowledge you need to make the best decision possible for you. Many people don\u2019t realise the full implications of being offered a car with their work. Insurance, repair liability and tax must all be considered.<\/p>\n
A car allowance is a sum of money that\u2019s been added to your annual salary. With this money, you can purchase or lease a car. Some businesses may also offer a mileage allowance alongside a vehicle allowance.<\/p>\n
The first step is to agree with your employer on how much money the company gives to for the use of your car. A survey had found that the average UK car allowance is:<\/p>\n
Once this is done, the car allowance clause must be added to the employment contract. This should cover:<\/p>\n
As car allowance is grouped into an employee’s salary, car allowance tax is charged in line with income tax brackets. This is something to consider if you are nearing or on a high rate of tax.<\/p>\n
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 it will own by you, thus you can sell it whenever you want.<\/p>\n
A company car is simply a car a business provides to its employees for both business and sometimes personal use. If you\u2019re able to use your company car for personal transport, you\u2019ll need to pay BIK (Benefit in Kind) tax. This is because the car is a perk that is being paid for by the employer, on top of a salary. Because of this, you benefit financially.<\/p>\n
BIK tax is based on the following:<\/p>\n
The amount an employee will pay also depends on the personal income tax bracket they\u2019re in. For example, if you pay 20% tax, you\u2019ll pay 20% of the taxable portion of the car\u2019s P11D value.<\/p>\n
If you supply a company car, you are responsible for the following:<\/p>\n
Company cars allow you to avoid the burdens of financial responsibility because nothing is in your name. If you have an allowance, you are responsible, financially speaking, for the vehicle.<\/p>\n
Another benefit is that company cars are also insured, serviced, and repaired by your employer, so you don\u2019t have to worry about that either.<\/p>\n
Ultimately, it\u2019s a question of finance. Weighing up the benefits, if you\u2019re 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\u2019t afford or don\u2019t want the hassle of looking after a car yourself, pick a company car and let your employer worry about it for you.<\/p>\n
Whether you 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\u2019re driving around in a company car, you\u2019ll need to pay Benefit In Kind (BIK) car tax.<\/p>\n