Company Car vs Cash-Based Motor Allowance: Which One Wins?

Date: June 23rd, 2017

Company Car vs Cash-Based Motor Allowance: Which One Wins?
There’s no two ways about it, a company car is a nice thing to have, but is it your best option? Not so long ago, there wasn’t a great deal of scope; you were either given a company car or you wasn’t. Nowadays, however, you may well have a choice: company car or a cash-based allowance. The question is, which is best?

As with any decision such as this, there will always be an element of personal preference and individual circumstances to take into account. That being said, there are a few clear pros and cons when you pit company cars against a car allowance, and it’s these points we are going to concentrate on today.

Opting for a standard company car scheme

It makes sense to start off with the old school way of doing things, so we’ll examine the pros and cons of accepting a company car scheme from your employer first. Many of the pros associated with having a company car are obvious, but they are worth reiterating for the purpose of the comparison we’re making here today.

One of the most important factors for many employees will be the hassle-free nature of opting for a company car. Taking on such a perk of the job means that you’ll no longer have to concern yourself with irksome tasks such as maintaining the vehicle or getting it serviced – you don’t even have to worry about selling it once you’re ready to upgrade!

While we on the subject of woe-inducing motor-related jobs, having a company car will also remove the annual search for the best insurance quote too, as your company will be handling that for you. It’s highly likely you’ll have breakdown cover thrown in as well. Sweet!

If you thinking, I’m sold already!, it’s not all rainbows and unicorns, unfortunately. Taking on a company car does have its downsides, and the main one is the company car tax you’ll have to pay. Sure, you can opt for a super low emissions motor to cut the cost, and if you’re happy with that that’s fine, but many people don’t like the restriction on choice this places upon them and their motoring.

You may also find that the fuel you use isn’t quite as free as it may first appear. A lot of company car schemes will have fuel included in the package, which at face value sounds like a great deal, but you will still be required to pay something towards the cost of fueling the car – Car Fuel Benefit.

Car Fuel Benefit is calculated by taking the car’s CO₂ emissions appropriate percentages and multiplying that number by the fixed figure set for fuel benefit for that tax year. To work out what that means for you in pounds and pence, check out this calculator.

Company car pros:

  • Hassle-free motoring
  • Easy upgrade

Company car cons:

  • The car is never yours
  • Associated taxation may not suit your needs
  • The above may impact on the amount of choice you have
  • Your company may also only allow you to select from a certain manufacturer

Going down the car allowance route

So, we’ve taken a look at the old guard, but what about the new gun in town? Cash-based car allowances are growing in popularity, and there are plenty of reasons why this is the case. However, as we saw with the company car model, there are both pluses and minuses to taking the money rather than tying yourself into a company car scheme, so let’s take a look at them in a little more detail.

Cash allowances for motoring needs can be an extremely convenient perk of the job, especially if you live right on top of your workplace or if you already have a car bought and paid for sitting on your driveway. This extra money can be seen as somewhat of a windfall, but, as ever, it’s important to take a look at the bigger picture to ensure that you are making the right decision.

If you choose to take the money and spend it on a new car, then you will not have the restrictions associated with the company car model. Not only will company cars have your own personal restrictions on them, such as lowering the CO₂ emissions in order to pay less tax, but it’s highly likely they’ll also have company restrictions too.

The most common of these is that many companies will enter into partnerships with certain car manufacturers, which means that you could end up with a Ford when ideally you wanted a Vauxhall, or vice versa. This may seem like a minor inconvenience to some, but to others it can be a major pain point.

Having the restriction of choice lifted is great, but there’s more. Opting to take a cash-based car allowance also means that you won’t be subject to company car tax or the Car Fuel Benefit charge, so you’ll likely come out ahead here. You will, however, now have the responsibility of maintaining and servicing the vehicle…but not always.

Just because you’ve taken a car allowance doesn’t mean you have to buy a car outright. Personal car leasing becomes a very real option for those who ditch the company car model in favour of a car allowance, and the savings can be significant. Furthermore, many personal car leasing schemes now recognise that there’s a real market for hassle-free motoring, so things such as road tax, maintenance, breakdown cover, and services are often included in the package.

Even taking advantage of the newest models becomes way easier when you decide to take out a personal car lease, as switching to the very latest car and all of its associated gadgetry is literally just a phone call away. Not only that, you’ll also know exactly where you stand in terms of your finances too.

Fixed monthly charges give you the ability to properly budget your motoring costs and control your finances accordingly. Of course, these charges will still need to be met, whether you are receiving the car allowance or not, which is an important point to bear in mind.

Pros:

  • Almost unlimited choice of vehicle
  • Your car could become an asset
  • No company car tax
  • You make the decision over your finance agreement
  • You control the way the allowance is spent
  • Business use is still reimbursable, subject to your employer’s rate

Cons:

  • Increased income tax and NI because of the extra money being paid to you by your employer
  • Maintenance costs are yours (although this can be negated with some leasing contracts)
  • You could still have to pay for the car even if the car allowance ends

So, which one wins? Company car or car allowance?

As you’ve probably gathered, this is largely subjective and will come down to your own personal situation much of the time. What may be seen as pros by one person could well be cons for another.

That being said, if we had to put our head on the block, we’d opt for a car allowance every time. The freedom it gives you is priceless and many of the negatives can be easily overcome by making wise decisions. So, there you have it – cash-based car allowances take the crown!

Quick guild from Audi on how to calculate your BIK tax for your company car