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Company Cars vs Car Allowance
When it comes to choosing whether company cars or car allowance is the more suitable choice, it can be a long, frustrating, and even confusing time. What might benefit one person more, may result in a costly choice for another.
What is a Company Car?
A company car, which is sometimes referred to as a take-home vehicle, is a vehicle which is owned or leased by a business but used by an employee. Unlike other options, such as pool vehicles, a company car can be used for both business and personal use.
What is a Car Allowance?
A car allowance simply means the replacement of leasing a car, by instead giving the employee a cash allowance, which they will then use themselves for their vehicle.
The Differences
Both come with differences, which is why it can sometimes be difficult when deciding which option is the better option. Especially when each option has to benefit both the driver and the employer.
Choosing Your Own Vehicle (Car Allowance)
As the employer is not leasing a car, a cash allowance enables the driver to choose their own vehicle based on the amount they are granted. Many employees will see this as a huge benefit, as they would otherwise not have a say in the type of car they receive. This method also comes with many options, and cars can be obtained through outright purchase, hire purchase, or through a leasing company.
Furthermore, they could also be a benefit to the employer, who does not have to take the time to find a suitable car.
Less Hassle for the Employee (Company Car)
Accepting a car allowance rather than a company car can be coupled with hassle. For those who are new to the scene, there would have to be plenty research and planning, which would otherwise be taken care of by the employer through the use of a company car.
Those who are worried about working out costs & researching for hours about the subject, might be put off by a car allowance, and opt for a company car.
Those who have a little more knowledge on the allowance may be happy to further their learning.
Company Car Tax vs Car Allowance Tax
Both options are taxed differently, based on different factors. This can be a make or break for each depending on certain circumstances.
Firstly, let us take a look at company car tax.
A bit more complicated than car allowance tax, this is based on multiple factors. To begin with, the P111D value must be known. In other terms, this means the value of the car that is being used.
Businesses must also take into consideration the CO2/kg emissions figure. Different carbon outputs have different bands, also known as the BIK band.
Then, using the combination of price, the BIK band, and the type of fuel the car takes, a business can calculate the amount of tax they would be expected to pay for their company car.
As mentioned before, car allowance tax is a lot simpler. The total cash allowance an employer allows his staff is added to the receiver’s yearly wage, and the income & allowance are treated as one whole price, and taxed yearly as the employee would normally be taxed.
Which one is more suitable for you?
It all depends on personal circumstances. In accordance with your income, what tax bracket do you belong to? The higher the percentage, the more that will be taken away from the total price of a car allowance. What was originally around £5,000 a year could become £3,000 after tax. You can check how much you’d be paying here
A decision can also be made from personal preferences. Whether or not you want to be the decider of your own vehicle or want to go through the journey of having to purchase/hire a car by yourself.
Would you like to discuss your options in more detail? Contact the experts at Fleet Dynamic on 01942 272999.
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