In our last article we spoke about the pros and cons of having a company car.
As another option, sometimes employees are given the option to choose cash for a vehicle as a company benefit. If you have the privilege of a choice between a company car and company car allowance, it makes sense to take the time to decide which option is best for you. Here we talk specifically about taking a company car allowance.
The first step is to find out the value of a cash alternative. Some companies offer the exact value of leasing costs, while others also account for tax in their calculations. The precise figures can be important in determining which option offers the greatest financial reward.
5 Benefits of a Car Allowance
- Ownership of Your Car: Having the option to buy your own car with the cash sum you receive means the vehicle acts as an asset to be sold at the end of the term. If you leave your job, you can also take the car with you.
- Additional Income: If you already own a car and have no plans to upgrade, opting for the cash allowance can provide a useful cash injection, boosting your income by thousands of pounds per year.
- Flexible Use of Funds: If driving the latest car is low on your list of priorities, you might prefer to use the money in another way.
- Financing Options: You can use the cash to buy your own car. A popular way of financing this is through Personal Contract Purchase (PCP). This allows you to use the cash allowance to finance a car you will eventually own.
- Mileage Reimbursement: If you choose this route, you can often charge your employer a mileage fee to cover the cost of fuel and maintenance at a rate of 45p per mile. This government-set rate is capped at a maximum of 10,000 miles per year.
Cost of a Car Allowance
It is important to note that you will take a tax hit on a car allowance, so it’s important to run your calculations correctly. Receiving a cash sum means you’re liable to pay income tax on the monthly allowance – and you’ll also need to cover the cost of any regular checks, maintenance, unexpected repairs, as well as your own insurance.
Car tax is one of the main factors that will affect your decision as to whether you should get a company car or just an allowance. Since car tax calculations rely on a vehicle’s CO2 emissions instead of a driver’s business mileage, you can dramatically reduce the amount of tax you have to pay by choosing an environmentally friendly vehicle.
You must also consider that there is greater personal risk inherent in financing your own vehicle, as opposed to being in a company car scheme.
Although there is more freedom to choose your ideal car when you take the cash, your company may still set restrictions. While you won’t be limited to a handful of low emission car manufacturers, you might still be unable to choose a three-door or convertible model. Choosing a cash allowance is the more flexible option, since this cash can be used for a variety of purposes, or to finance your dream vehicle. So, if you’re looking for flexibility or your own set of wheels, company car allowance cash can be the more attractive option.