Why do companies offer car allowance

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. 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. A company car, in simple terms, is a car provided by a firm for the business and private use of one of its employees. 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.

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. We specialise in prestige, luxury, performance and 4 x 4 cars. Borne out of a passion for all things motoring. Start your search for your dream car.

Our business solutions division can offer a range of services to support your business fleet. From consultancy through to fleet supply and ongoing management. Call us today. Our knowledge base is our information store. It's the home for our guides, calculators, tools, whitepapers, FAQs, case studies and more. Although a company car continues to be seen as an enticing work perk to most, employees are increasingly being offered a cash allowance as an alternative to a company car scheme.

This guide looks at the costs, long-term implications, advantages and disadvantages of both to help you decide which option best suits your needs. A company car scheme is where a company offers its employees a vehicle for personal and business use. Company cars are usually offered to those who need to drive as a requirement of their job or to other employees as an additional work perk. One popular company car scheme is salary sacrifice , where an employee gives up part of their gross salary in exchange for a fully maintained and insured new vehicle.

As the salary is sacrificed before tax and national insurance contributions are taken, the employee effectively gets a brand new car at a significantly lower cost than the retail market. Typically servicing, maintenance and fully comprehensive motor insurance is included in the scheme.

To enter into a company car scheme, employees generally need to be in a substantive or permanent position within the business and have a regular pattern of work. Their wage must also not drop below the national minimum wage once they join the scheme. When effectively managed, a company car scheme is an attractive way for employees to save on the cost of driving a brand new vehicle, even after paying BIK tax. Some of the other benefits of company car schemes include:.

While often overlooked this benefit could help you save money in the long term. Typically maintenance, servicing and insurance for the company car is all taken care of by the employer.

There may even be a company car fuel benefit which will be cheaper than filling up yourself, since your employer will fill up for you and then charge you a flat rate just like the BIK tax. This also allows you to benefit from the latest vehicle tech while commuting. Here are some points you might want to think over before making your decision.

On the opposite side of the spectrum your employer may choose a really nice model but in doing so cause your BIK tax rates to soar through the ceiling! If your employer has given you free fuel along with your company car that you make use of during your personal time, you may have to pay fuel benefit tax. If you end up leaving the business, the car will stay with the company. As a result, you will have to finance your own vehicle, see if your next employer offers a similar scheme or risk being without a car.

You may also become attached or sentimental about your company car which could also be a disadvantage when it comes to giving it up. Car allowance is becoming increasingly popular due to its flexibility, as employers no longer have to manage a fleet of vehicles. Here are the main benefits of car allowance for employees.

As well as the freedom to choose your own vehicle, you also have the freedom to decide whether you buy or lease the vehicle. This gives you the opportunity to own a car based on the car allowance scheme if you think you will be around for a while, or to simply lease the vehicle over a shorter contract if you might leave the company in the future.

Using a car allowance to purchase a car could mean that you profit from it when it comes to selling it on in the future. Just like with a company car, there are also a number of disadvantages that you may want to consider before deciding if car allowance is definitely for you.