Often, employees and executives can choose between a brand-new company car and an enticing cash bonus, in the form of car allowance.
To decide which option is best for you, it is important to understand the ongoing costs and long-term implications of both. In this article we explore company car schemes.
What are the Benefits of a Company Car Scheme?
Opting for a company car means you will save on the cost of the vehicle itself and every day running costs. You will also avoid many of the administrative tasks involved in car ownership, including the hassle of selling the car in the future.
You can save significantly on insurance and breakdown cover, as these costs are usually included in the scheme. If your agreement covers fuel, the ability to claim cashback when you fill up can also be very attractive.
Additionally, you will benefit from having a new car every three to four years, giving you access to the latest technology and fuel efficiency improvements.
What are the Costs of Joining a Company Car Scheme?
While the savings are appealing, there are still some costs associated with being provided with a company car.
Road tax is a significant cost you will still need to cover with a company car. The type of car you drive affects the car tax rates, and usually, you will have a more limited selection of cars in a company car scheme.
If your company car package includes fuel, you will also need to pay Car Fuel Benefit each month. This is a tax on the cash equivalent of your annual fuel allowance, as this ‘benefit in kind’ is taxed like a salary.
The amount of this tax depends on your car’s CO2 emissions, the car’s value when new, and your income tax band. The HMRC calculator can help you understand these costs.
Beyond the financial costs of having a company car, you will never own the car. This means you won’t have an asset to sell later and will need to find an alternative mode of transport if you change jobs. Something to bear in mind if you don’t have access to another vehicle.
How to Maximise the Benefits of Company Car Schemes
Even with additional costs like the Car Fuel Benefit, you can still make significant savings if you have a long commute. Generally, the more you drive, the greater the financial benefit.
Since tax will be your main monthly expense, keeping your tax bill low is crucial for maximising savings. The easiest way to do this is by choosing a car with low CO2 emissions.
Look out for our next article on the pros and cons of taking Company Car Allowance.