What is a Company Car?

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

You will 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 are not 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 do not own the vehicle you won’t need to worry about the vehicle value depreciating.
  • The BIK rates you will 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 do not 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 for you to choose from. 
  • If you are leasing your employer may also set restrictions on the lease, which could include your mileage allowance and the length of the lease.
  • If it is a lease the 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 will not 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 is included as part of your package from your employer, then you will also have to pay fuel benefit tax.

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

company car benefits

What is 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 will not have to pay BIK on a car allowance, but it will be subject to tax at your normal income tax rate.

There are no set rates for the car allowance, but it is generally assumed that the cash offered would be the same as a lease vehicle. It is worth you checking the value of a cash allowance if you are 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 is 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 will 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 will usually need to pay for any maintenance required and fuel.

Should I Go for a Company Car or Car Allowance?

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

It is important that you research both options, if they are both available to you, to decide which is best for you. There are a number of different factors you will need to consider when deciding which option is right for you.

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


The number of miles you travel will be a big factor in deciding whether a company car or car allowance is right for you. It is often better to go for a company car if you do a lot of miles.

Existing Arrangement

If you already own your own car, or have an existing personal lease, then you will need to decide what you are doing with this vehicle and any cost involved in selling or returning this. 

Car Allowance Amount

As there is no set amount for the car allowance you will want to look at the amount your employer offers and the tax you will need to pay on this to help decide if this would be the right option for you.

Company Car Restrictions

If you are looking at a company car then there may be restrictions set by your employer. It is worth checking what these will be before deciding which option is right for you.

BIK Rates

The BIK rates are based on the vehicle’s P11D and CO2 emissions as well as your personal tax band, so it would be worth looking at what the BIK rates will be on the vehicles you are considering for a company car.

If you have a personal vehicle and decide that taking a company car is the better option for you then you might be unsure on what to do with your personal vehicle. 

Some drivers decide that as they can use their company car for personal travel the best option is selling their personal vehicle as they no longer then have the running and maintenance cost associated with owning a vehicle they get little use out of.

If you find yourself in this situation then we can help. We've teamed up with carwow so that you can sell your car to a verified dealer who will purchase your car quickly and hassle-free.

Just check your registration number below to get an instant valuation! 

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Check out one of our helpful guides or our explaination of leasing to get all your questions answered.

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