Company Car VS Car Allowance

What's a company car?

A company car's a vehicle provided by your employer for you to use, for business and usually personal use as well. 

You'll need to pay company car tax, also known as a Benefit in Kind or BIK tax, if you have a company car. For more information on this take a look at our Guide to Company Car Tax.

What are the benefits?

• With a company car, the finance is in the business name, so you aren't personally tied to the contract.
• If you opt for a company car, your insurance, servicing and maintenance will usually be covered by your employer as well.
• As you don't own the vehicle, you won’t need to worry about the vehicle value depreciating.
• The BIK rates you'll have to pay are often a fraction of the cost of the lease if you were to take it out yourself.
• With a lease vehicle for your company car you can get a new model every few years.
• You can end up with a nicer car as there are often cheaper lease deals for businesses as they don't have to pay the full VAT rates.

What are the costs?

• As the finance is in the business name, your employer may set restrictions on the vehicles available to choose from. 
• If you're leasing, your employer may also set restrictions on the lease, which could include your mileage allowance and the length of the lease.
• A lease vehicle will need to be returned in line with the BVRLA's fair wear and tear guidelines and if there are damage charges from the funder your employer may pass these onto you. 
• You won't own the vehicle and if you leave your job the car will stay with your employer.
• The BIK rates can be expensive for high value vehicles.
• If fuel's included as part of your package from your employer, then you'll also have to pay fuel benefit tax.

For a more detailed look at the company car check out our guide here. 

What's a car allowance?

A car allowance is a cash allowance added to your annual salary for you to arrange a lease or buy a vehicle.

You won't have to pay BIK on a car allowance, but it'll be subject to tax at your normal income tax rate.

There are no set rates for the car allowance, but it's generally assumed that the cash offered would be the same as a lease vehicle. It's worth checking the value of a cash allowance if you're deciding whether this is the right option for you.

What are the benefits?

• You can choose whatever car you want.
• You can buy a vehicle outright if you want to own the car rather than lease.
• If you already own a vehicle and want to continue using this then the car allowance can help with other financial responsibilities.
• With a car allowance, if you decide to leave your job the vehicle will remain with you, even if it's a lease.

What are the costs?

• If you decide to lease then the finance must be in your name.
• A car allowance is subject to your rate of personal income tax.
• You'll be responsible for insuring and maintaining the vehicle and, unless you decide to lease, for road tax as well.
• High mileage can make leasing with a car allowance expensive as you'll usually need to pay for any maintenance required and fuel.

Should I go for a company car or car allowance?

There's no set answer to this question as it depends on your individual circumstances, driving requirements and habits. It's usually the option that saves you the most money that's the preferred route, so you'll want to look into them both to decide which would be the most cost-effective for you.

It's important that you research both options, if they're both available, to decide which is best. There are a number of different factors to consider when deciding which option to choose.

 We’ve noted a few of the most important ones below: