If you’re thinking of taking the Company Car Allowance over a Company Car you might want to weigh up the pros and cons before you make you choose.
As with any financial decision, choosing between taking a company car or opting to take the cash option car allowance will be highly personal to your current circumstances.
In this blog we’re listing the general pros and cons, some may apply to you and others may not.
Pros Of Taking The Company Car Allowance
- You can allocate your allowance towards a car you already own.
- You can choose to buy or lease a new car with your allowance.
- You can choose to acquire a second hand car if you wish.
- Essentially you have a choice of whatever vehicle you prefer and may be able to pick a vehicle that best suits your personal or driving style.
- Your allowance will be invested in an asset you can sell at a later date.
- If you change jobs you can take your car with you whereas a company car would be taken back.
- Many Company Cars are now low emissions and may have smaller engine sizes, but choosing the company car allowance means you will be able to have a car with a larger engine.
- Your car allowance will go towards a vehicle you can use for business and personal travel, some companies will not allow personal use of company cars.
- You won’t have to pay benefit in kind tax on your vehicle.
- You can claim your mileage on the Government's Approved Mileage Allowance Payments scheme (AMAP). 45p per business mile up to 10,000 miles per annum, and 25p per mile thereafter. If your employer doesn’t pay AMAP, you can claim back the difference in your annual tax return. Keep your receipts and record your mileage with every journey.
Cons Of Taking The Company Car Allowance
- If leasing a car, it’s your name on the contract and you’ll be responsible for the costs of the lease even if your employment situation changes.
- If buying a new or second hand car you will similarly be responsible for the overall financial burden, as your allowance is unlikely to cover the full cost of the vehicle.
- If leasing, you are likely to face higher financing costs than your employer would.
- If buying, you may have to pay list price because you don’t have the same negotiating power as your employer.
- You’re taking on the responsibility of leasing / owning the vehicle. It’s running costs, MOT, repairs, road tax, insurance and roadside recovery.
- You will pay tax on the monthly allowance.
- If your credit rating is already medium-poor, leasing or buying on finance may drop your credit rating further, leading to additional problems in the future.
- If you opt for the company car, it’s likely you’ll be given a new car every few years. If you take the allowance to lease or purchase a car you may not update your vehicle as often.
The world of tax is complex, so if you are still unsure why not ask to speak to someone in your company’s finance team or consult your accountant?