Which is best: Company car or car allowance?

If your job involves a lot of driving, then it might include a car to help you get around. As the name suggests, a company car is leased or owned by your employer, who will also cover insurance, maintenance and other running costs to keep it ready for work use. However, it’s typically also available for you to use out of hours.

What are the advantages of a company car?

Company car tax is heavily weighted based on CO2 emissions, with large incentives for vehicles under 50g/km – which covers most plug-in hybrids and all electric cars. Choose carefully and monthly Benefit-in-Kind payments could be cheaper than buying or leasing privately. You’ll also get a new car every three or four years, won’t have to worry about unexpected bills, and can hand the keys back to your employer if you change jobs.

Autocar’s company car tax calculator, showing exactly what you’ll pay for each and every make and model

What are the disadvantages of a company car?

It’s common for company car policies to have caps on vehicle price, CO2 emissions and optional extras to keep a lid on running costs, and some also limit drivers to specific brands and body styles. Even if you’re eligible for a company car, you might not be able to choose what you want or need.

Cash Allowances

Some employers will let drivers opt out of a company car scheme and take a cash allowance instead. This is a lump sum added to their salary to buy or lease something privately, and have become more popular as diesel penalties and the usually higher WLTP-derived CO2 emissions have hiked up company car tax almost across the board.

What are the advantages of cash allowances?

The world is your oyster. A cash allowance lets you shop like a private buyer, choose whatever car you want, upgrade to a new one whenever you like, and take it with you if you change jobs.

Cash allowances are treated as part of your wages, so you’ll pay income tax (usually at a rate of 20% or 40%) and National Insurance Contributions on them. However, if you need something with quite high CO2 emissions – such as a tow car or MPV – then tax costs could be lower than paying Benefit-in-Kind as a company car driver.

What are the disadvantages of cash allowances?

As a private customer, you’re responsible for keeping up the monthly payments, making sure the car is properly insured and maintained for work use and sticking within the mileage limits of your finance contract. Cash allowances have also become less attractive since HMRC renewed company car tax incentives for low-emission vehicles last year.


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