Finances

Company car lease vs car allowance: which is best for you?

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This guide outlines the pros and cons of a company car lease vs getting a car allowance to help you decide.

Among the many desirable perks that employers might look to offer to prospective recruits, a company-car is probably the most eye-catching. It’ll provide employees with an incentive to take a job, even if it requires a lot of travel – since it’ll be the company bearing the cost of motoring.

In some cases, however, there’s reason to think that a car allowance is preferable to be given a car outright, even with a a company car lease. This is largely on the grounds of flexibility and personal freedom for the employee.

Company car lease vs car allowance

Let’s take a look at both alternatives and see if we can determine which one might better fit your particular circumstances.

Company Car

A company car lease can be a great option for you if you have to travel a long distance to reach your company because you don’t need to bother about the unexpected costs. If you opt for a company car, then you won’t have to worry much about Benefit in Kind (or BiK) taxes, which are levied on employees granted significant perks by the employees. If you’re simply given money to spend on a car, then the exchequer considers it roughly tantamount to an increase in income, and you’re charged accordingly. Low-emission cars are charged lower rates of BiK – which often makes them tantalising relative to a car allowance.

Also, since you don’t actually own a company car, then you won’t have to worry about one of the major costs associated with car ownership, namely: depreciation. The company will also be responsible for maintaining, servicing, and insuring the vehicle under a company car lease – meaning that it’s just the fuelling that you need to spend money on. In particular, company cars tend to be new – so you’ll get the perk of driving a new vehicle without worrying about the depreciation costs associated with doing so.

The Advantages of a Company Car Lease:

From low benefit in kind (BiK) tax rates to the liberty of making financial agreements, having a company car can bring multiple advantages, such as-

  1. Low BiK Tax Rates: Employees need to pay BiK tax depending on the fuel type, CO2 emissions, and income tax rate, and the employer deducts this tax directly from their salary. However, when you choose to have a company car, you don’t have to worry much about this.
  2. No Depreciation Costs: Not being the owner of the car, you do not need to fear the depreciation of the vehicle.
  3. Eliminates Unexpected Costs: Having a company car eliminates several unexpected costs, such as servicing, maintenance, and insurance of the car.
  4. A New Car: You will have the opportunity to drive a new car and use the latest vehicle tech as the companies update their cars after every 3-4 years.
  5. Eliminates the Need to Make Financial Agreements: It is the company’s responsibility to make financial agreements for the car and provide monthly payments.

Disadvantages of a Company Car:

Despite the benefits, there are some limitations to having a company car, such as

  1. You may not have the opportunity to select your car.
  2. If your employer provides a nice model with greater CO2 emissions, you have to pay a higher BK tax rate.
  3. In some cases, you may have to pay a fuel benefit tax.
  4. If you leave the company, you have to leave the car which can be painful due to the attachment that you have built with the car.

Car Allowance

Even though a car allowance is not very common, this gives you the flexibility to spend the money for any purpose, for instance, paying the running costs of the car or purchasing new wheels. If you’re given a car allowance, then you’ll have the flexibility to choose your own vehicle. You might seek to cut costs by going for something more affordable and pocket the difference. You might go for a lease rather than a purchase. With that said, your employer might seek to impose particular requirements, like the number of seats. Double-check these before you commit.

It might be that you already have a car that you’re happy with, in which case you can put the money to better use elsewhere. You might also buy a car with a view to selling it further down the line. Since it’s yours to sell, you can use it to turn a respectable profit.

The Advantages of Car Allowance

Because of the flexibility, the popularity of car allowance is increasing. The employers also do not need to manage all the vehicles. So, let’s take a look at the major advantages of a car allowance.

  1. Liberty to Select Your Own Vehicle: Car allowance gives you the liberty to select your own vehicle or utilize your personal car for company purposes.
  2. A Flexible Cash Boost: If you have a personal car, you can use the money from your car allowance for different purposes including car insurance or financial payments.
  3. Potential to Make Profit: You can buy a car using your car allowance and this is profitable as you can sell the car in the future.

Disadvantages of Car Allowance:

There are also certain disadvantages associated with car allowance, such as

  1. Purchasing a new car with a car allowance will give a new set of responsibilities.
  2. You have to pay for the maintenance, insurance, servicing, fuel, and road tax.
  3. When you are travelling a long distance to reach your company, a car allowance may not be a good option for you due to the huge fuel costs.

So, which is best?

The discussion of the advantages and disadvantages of both sides will hopefully help you to understand whether a company or car allowance is the best for you. However, your choice will depend on your personal financial circumstances and motoring preferences, as well as the sort of vehicle being offered. Look into the emissions of your would-be company car, and make sure that the decision is being made in light of all of the facts. Know exactly how much you’re going to be spending on tax and fuelling before you commit to a decision either way.

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