If part of your salary and benefits package includes a car we’re sure you will want to be ensuring you’re getting the best vehicle for your money. Increasingly, employees are given the option to choose between a new vehicle and an appealing cash bonus for you to lease or buy your own car.
This article looks into both options and shares the pros and cons.
Benefits of a company car scheme
- Driving a company car means you’ll save on the cost of the vehicle itself as well as every day running costs.
- You won’t have to worry about car ‘admin’ – servicing etc as this is usually taken care of by the business.
- You might be able to make savings on insurance and breakdown cover, which can be covered by the agreement.
- You might also get a fuel allowance which can save you money.
- You’ll also enjoy getting behind the wheel of a new company car, typically every 3-4 years.
What are the costs of entering a company car scheme?
- Road tax is one of the key costs you’ll still need to cover with a company car. Since the vehicle you drive can make a big difference to car tax rates, typically you will have a more restricted choice of cars under a company car scheme.
- If your company car package includes fuel, you will also need to pay Car Fuel Benefit each month. This is a tax on the cash equivalent of your annual fuel allowance, since this ‘benefit in kind’ is taxed like a salary. This tax depends on the CO2 emissions of your chosen car, the value of the car when new, as well as your income tax band.
- Many drivers report that the further they drive, the greater the financial benefit.
- Tax is the primary monthly cost, keeping your tax bill low is a key way to make savings. The simplest way to do this is by choosing a car model with low CO2 emissions.
- Some people find this restrictive if they have a special idea of the car they’d like to drive.
Taking a company allowance
Some companies offer the exact value of leasing costs, while others also account for tax in their calculations so knowing the exact figure is important in deciding which option is best for you:
Benefits of a car allowance
- Having the option to lease or buy your own car with the cash sum you receive. If you leave your job, you can also keep the leased or purchased car
- If you already lease or own a car, that fits with your company’s policy (some may specific age and type of vehicle for example) opting for the cash allowance can provide a useful cash injection.
- If you choose this route, you can charge your employer a mileage fee to cover the cost of fuel and maintenance at a rate of 45p per mile. This government-set rate is capped at a maximum 10,000 miles per year.
Cost of a car allowance
- You will pay tax on a car allowance, so take time to make these calculations correctly.
- Receiving a cash sum means you’re liable to pay income tax on the monthly allowance
- You’ll need to foot the bill for any unexpected repairs.
- There is greater personal risk, when compared to being part of a company car scheme, as you are financing your own vehicle.
- There is more freedom to choose your ideal car when you take the cash, but do check if your company set restrictions.
Summary
Overall, choosing a cash allowance is the more flexible option but unless your commute is short, a company car scheme can offer fantastic savings potential as well as freedom from unexpected costs.