Company cars are a long-established and very desirable workplace perk, and usually offered only to drivers with a specific job need. They are owned or leased by your employer, but also available for you to use outside work hours, just like a privately owned car.
What are the advantages of a company car?
It’s an almost hassle-free way to get around. Employers cover nearly all of the running costs, excluding the fuel used for personal journeys, so there’s no insurance, servicing or tyre bills to worry about and company car tax is a predictable monthly outlay. You’ll usually get a new car every three or four years and you can hand it back if you change jobs.
Company car tax has incentivised vehicles with low CO2 emissions for more than 20 years, and the latest bands offer generous discounts for plug-in hybrid and electric cars emitting 50g/km or less. If your lifestyle suits a plug-in, then your monthly tax bill will be significantly lower than the cost of buying or leasing the same vehicle privately.
What are the disadvantages of a company car?
As your employer is footing the bill, they’re in control. Company car policies often limit drivers by list price, CO2 emissions and optional extras and some are restricted to a single manufacturer. That means you might not get the car you really want, or the features you really need.
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 it has 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?
As a private buyer, you are not restricted by your company car policy. HMRC treats the money as extra wages, so you’ll pay income tax (typically at 20% or 40%) and national insurance contributions to receive it, but the car is yours. That means you can choose what you want, replace it whenever you like, and take it with you if you leave.
Cash allowances have become more popular recently, as WLTP-derived CO2 emissions and complying with tough Euro 6 pollutant limits have caused spiralling tax costs for petrol and diesel company cars. If you need something with quite high CO2 emissions, such as a tow car or MPV, tax costs could be lower than paying benefit in kind as a company car driver.
What are the disadvantages of cash allowances?