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Company Car or Car Allowance for Business Travel?

By: Chris Hogan MSc - Updated: 27 Dec 2012 | comments*Discuss
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A company car has long been a perk for employees in the UK and it has almost single-handedly assured the success of medium-sized family cars for the last four decades. But slowly the advantages of company cars have been eroded and many business travellers have been facing the choice between a car allowance and a company car.

The Two Sides of the Company Car Debate

On the one hand the government is keen to raise as much money in taxes on company cars as possible. Not only do they increase revenue but also they can tout it as a 'green' policy, as they are trying to discourage people from buying new cars and driving long-distances.

On the other side are the car manufacturers and fleet management companies. The car manufacturers cannot afford to lose the boost to car sales that company cars present. The fleet management companies make their living by managing all the company cars on behalf of companies. Fewer company cars means lower revenue for them.

Pros and Cons

The benefits of a company car are as follows:

  • You get a new car every three or four years
  • Servicing is taken care of
  • Car tax will be paid for
  • Tyres and other consumables are paid for
  • Repairs are usually covered
  • No loans required to buy a car
  • The fleet management company takes the depreciation hit
  • Insurance is normally paid

The benefits of a car allowance instead are:

  • You can choose to spend the money on anything you like, not just a car
  • You will almost certainly pay less tax

That's about it - it's really a battle between money and convenience, and if you're in the sort of job where you can earn more in the time it takes to sort out all the paraphernalia surrounding car ownership, then a company car is for you.

Car Allowance

If, on the other hand, your earnings are static whether you spend more time at work or not, you can do very nicely out of a company car allowance.

By buying a three year old quality car and replacing it every two years you can avoid the main peak of depreciation. If you can get a car which is cheap to run, with good mileage and low car tax, then you can also make the most out of claiming mileage from your employers too.

Take Advice

Before taking the decision whether to take a company car or a cash allowance it's important to assess your tax position, the mileage that you do and your employer's rules about using your own car for business. This is all very complex and the guidelines change almost every year, particularly the rules regarding tax allowances and car tax itself.

Fortunately there are plenty of calculators out there on the Internet that can help you. Be wary of advice from websites that are run for or by fleet management companies as they are likely to be biased. But the motoring organisations and money sites will help.

Enter your earnings and tax information and the calculators will give you an idea of how much you'll lose by taking a company car. If the amount isn’t great and taking the hassle out of car ownership is important to you then it might be worth taking the car rather than the car allowance.

The Third Way

There is another choice that has emerged in the last few years that might help out and that's personal car leasing. You, as a private individual, can get a new car provided by a fleet management company and pay a monthly amount to cover the price of the car.

Where it differs from just getting a bank loan or other finance to buy a car is that the monthly amount covers servicing, road tax repairs and all the other incidentals. It's therefore the same as having a company car but you get it from another company, not your employer.

Note for the Self-Employed

One other point worth mentioning is that if you are self-employed, whether it's through a limited company or as a sole trader, it's essential that you take the advice of your accountant or tax advisor before making this decision. If you are self-employed there are other implications regarding car ownership that someone who knows your affairs will be able to advise on.

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