What is a company car allowance?
A company car allowance is a cash allowance added to your annual salary which allows you to buy or lease a vehicle privately. A company car allowance is becoming increasingly popular with employers as an alternative to a company car as it offers the employee of the perks of a new vehicle without the employer having the hassle of running a car fleet.
There are no set rules as to amount that your employer will pay you as a company car allowance but it is generally assumed that the cash you'll be offered will be roughly what your employer would have paid to lease the company car.
While do you not have to worry about company car tax rates with a company car allowance, as the cash alternative is paid as part of salary, it will be taxed at the normal income tax rate and the contributions from your employer will also be taxed at source, just as your salary is.
What are the pros and cons of a company car allowance?
Once again, it is important to weigh up both the pros and cons of choosing a company car allowance over a company car before deciding whether this option is right for you.
A company car allowance offers many benefits, including:
- You can choose whatever car you want, allowing you to take advantage of in stock lease deals
- If you choose to buy outright, you'll own the vehicle and can sell it in the future
- If your annual mileage is low, you’re likely to better off financially
- If you already own a car the cash sum may help ease other financial burdens
- You can choose the best finance method for you
A company car allowance also has lots of considerations, including:
- You must take the finance out in your own name
- The company car allowance is subject to your rate of personal income tax
- You will be responsible for paying for your own insurance, maintenance and road tax
- High mileage (10,000+) can make private schemes expensive