If you’re recently found yourself a new job and been offered the nice benefit of either a company car or a car allowance, then you might be wondering which option is right for you. It’s not quite as straightforward as picking out a car you like and driving off, as there are a few factors that come into play. There are advantages and disadvantages to both, but it is likely to come down to personal preference.
To find out which option is best for you, it helps to understand the difference between them and the implications for each one. We’ve created this guide so you can read exactly what you need to know about company cars and car allowance.
Company Car or Car Allowance – What’s the difference?
The difference between a company car and car allowance is simply that a company car is when your employer provides you with a vehicle to use, while a car allowance is an amount of cash that you receive in your salary that you can use to buy or lease a car.
There is no set rule as to how much an employer needs to pay for a company car allowance, but it usually covers what the employer would pay to lease a company car including the mileage. Of course, you have the responsibility for looking after the car on both options, although, the difference is that for car allowance you are also responsible for handling payments and any costs, whereas with a company car your employer will handle these.
4 Advantages of a Company Car
There are a number of advantages for receiving a company car from your employer.
Employer is responsible for driving costs
Your employer will typically pay for maintenance, servicing, insurance, breakdown cover etc, meaning that there is a lot of hassle that you don’t need to worry about and no unexpected costs if these are covered by the agreement.
Not tied down to a contract
You’re not personally tied into a financial contract if you get a company car, and everything will be in your employer’s name. So, if there is an occasion where you need to leave the company, then you will not be stuck in an agreement with the car.
No depreciation worries
Similar to when you lease a car, you don’t need to worry about and depreciation costs, as you never own the vehicle yourself and the vehicle losing value over time will not impact you financially. This also means that you don’t have the hassle of needing to sell your car in the future, and potentially saves you a lot of money.
Brand new car every few years
Company cars are typically renewed and updated every few years meaning you’ll always be driving a new car and will get to benefit from the latest technology that the car market offers.
4 Disadvantages of a Company Car
Of course, while a company car is an excellent benefit to receive, there are disadvantages for this option too.
Less opportunity to choose your car
While some employers will give you an option for your company car, you may not be given the choice of your car. This often means that you won’t be able to get any upgrades or modifications if you’re looking for a better vehicle. Choosing your car is more important to some people than others and is often a major deal-breaker when choosing between a few options.
Never own the car
The vehicle will belong to the company, so if you decide to leave your company you won’t get to take the car with you. This can be a bit heart-breaking if you come to love your car and don’t want to part ways with it. You may also need to search for a new car quickly if your new job does not offer a similar scheme.
Heavy tax payments
You may face a high BIK tax rate if your employer decides to opt for a really nice car that has high CO2 emissions, which can be quite costly. There is also Fuel benefit tax to think about. Your employer may include fuel in your car package, which means you will need to pay fuel benefit tax if your employer does not cover this.
4 Advantages of a Car Allowance
Here are the main benefits to getting a car allowance as this becomes an increasingly strong choice for many employers and employees, who will both see the benefits of this.
Ability to choose your own vehicle
As you are given a cash boost to sort your own vehicle yourself, as opposed to being given a company car, you get the freedom to choose your own vehicle. This also means you can add on any options as you like, such as opting for the Tech Pack or Comfort & Sound Pack for a brand new Audi A6.
Will never have to give the car up
If you end up leaving the company, the car is in your hands and is your responsibility, so you won’t have to give it back. As it is your responsibility, this also means you can choose whether to buy or lease your brand-new car and choose the length of the contact you opt for.
Lower tax costs
You will often pay lower tax costs as you won’t have to pay company car tax on your vehicle as you usually would have to with a company car.
Cash allowance if you already have car
If you already own your car, you could use this cash allowance for other things such as upgrading your car, car insurance, maintenance or current lease payments if you are leasing your car. Therefore, car allowance can be a useful incentive if you already own your car to use on other financial responsibilities.
4 Disadvantages of a Car Allowance
Similar to a company car, there are also disadvantages with this choice too that it is important to be aware of when thinking about which choice is the right one for you.
Responsible for financing the car
Getting a car allowance will mean that you will need to take out a finance agreement in your own name. This is a pretty serious and important thing to manage correctly as it could have a detrimental impact on your finances if you don’t. This also means that if you leave the business, you need to continue to meet the costs of the car yourself. Some people may prefer their employer to take a car out in their name instead.
Need to record mileage and expenses
As you are the one who has taken out the car, that may also be used for personal usage, you will need to be in charge of recording all of your business mileage and expenses. You will be able to claim back on your business mileage, although the amount you can claim back decreases per mile after the first 10,000 miles. This means that if you drive a lot of miles, you may be losing out from the tax you can claim back.
Other costs are your responsibility
There are other costs to consider. For example, you will need to pay for insurance, maintenance, servicing and road tax and organise this all yourself. These costs may mean that the amount you can spend on the physical car itself is reduced. Although it’s worth noting that if you choose to lease your car, road tax, manufacturer’s warranty and breakdown cover are all included in the cost of the lease. This may be a factor of why you may choose to lease your car through a car allowance.
Of course, with most decisions such as choosing whether a company car or car allowance is right for you, it will come down to personal circumstances, preferences and your requirements. A major factor could be which one saves the most money, or it could be getting to choose your own car freely. Whether you go for a company car or car allowance, the decision is up to you. If you have any questions at all, our live chat team will be happy to help.
If you’re keen to look at your options for a car lease, head to our search page where you can view the hottest car lease deals on the market and narrow down the results to see all our available business lease deals.