If you’re currently deciding between taking the company car or the car allowance cash option on offer with your new job, you’re probably weighing up the pros and cons and trying to figure out how exactly company car tax works. Before you make a decision, it's important that you understand how a company car allowance is calculated.
For many, taking the car allowance is just too tempting to refuse. But how much money will you get towards your current car/new car in your cash option bonus?
In this blog Tim Warr of Warr & Co Accountants highlights the usual process a company goes through when calculating their cash option car leasing allowance.
How Much Will I Get if I Take the Car Allowance Cash Option?
There is no set amount you might be offered if you want to take the car allowance cash option. Your company may have several tiers of monthly allowance, and these could depend on the following factors:
- Expected business mileage
- The average cost of maintaining a vehicle in your area (average insurance and repair costs could factor into this)
- The current costs (if any) of maintaining a company fleet car
We’ve seen monthly car allowances that range from £150 per month all the way up to £1,000 per month.
The amount offered to you will be detailed in your car allowance offer as part of your benefit package, and you should be able to request a break-down of the calculation for your reference.
Can I Negotiate for More?
Absolutely, it’s your benefit package so why not? Especially if you take a look at the breakdown of costs and think that you’ll cover more miles than expected.
There should also be the option to re-negotiate should your job role change and therefore your business mileage increase. However, be aware that this is a door that swings both ways, you might end up reducing your allowance should your job role change meaning you drive less.
Do I Have To Use 100% Of The Allowance In Order To Qualify?
This depends on your employer, but generally the case is that it’s your allowance to spend how you will. Remember that you will be taxed on it, so be careful what you ask for.
Do You Have Any Advice For Businesses Offering The Car Allowance Cash Option?
Many businesses are beginning to offer the cash option car allowance as it’s often preferable for the company car option for both businesses and employees.
Offering the car allowance option instead of company cars can benefit a business in the following ways:
- Less administrative burden
- Fewer assets to secure and insure
- No involvement with repair work or buying and selling
When calculating how much you will offer for an employees car allowance you should discuss expected annual mileage with the employee’s department and any specific vehicle requirements, for example, they might require a spacious four door if the employee is likely to entertain clients.
The requirements may result in a higher monthly allowance being necessary to help represent your company in its best light.
For more information on the car allowance, check out our company car allowance explained article.