If you're in the midst of signing a new employment contract, your employer might be giving you the choice of a few driving-related perks. Should you take a salary sacrifice car lease? Or are you stuck between taking a company car or the car allowance cash option?
Whatever you're considering, you’re probably weighing up the pros and cons and trying to figure out how exactly company car tax works and what BIK rates you'll fall under (or how company car tax on electric cars works if you're eco-minded!). 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. So many doors are opened to you: buy new, buy used, take out a personal contract hire deal, make payments towards an existing car. 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 car maintenance costs 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.
Remember that you might be able to claim back additional money on an on-going basis through your company mileage rates.
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.
To help you see how much bang you can get for your buck, read up on how car leasing works and browse our personal car leasing deals. The primary difference between personal and business car leasing is that you'll pay VAT on personal lease deals. You can easily see how far your allowance will stretch and whether you can set some aside for other things.
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.
If you decide to go down a route like offering a company car, you should read up on how business car leasing works so you can consider all of your options. If you choose this option, Lease Fetcher helps you to compare car lease deals with ease, so know you're getting the best deal from the best broker.
For more information on the car allowance, check out our full guide to the car allowance.