To help explain how a company car scheme works, UK car leasing provider, Nationwide Vehicle Contracts, has put together a short guide laying out the pros and cons of a company car.
What is a company car?
A company car is a vehicle provided by an employer for both business and private use. To justify the use of a company car, the employee is usually required to travel significantly for their role, such as a regional sales manager.
Historically, company cars tended to be bought in bulk and the keys handed to an employee. Today, most company cars are chosen by the employee from a list of car lease special offers that have been pre-approved by their employer. Luxury car leasing is also a popular choice for company cars, as image is an important part of branding for many employers.
How does a company car scheme work?
To qualify for a company car scheme, employees usually need to be in a significant or permanent position within the business and have a regular work pattern. Also, once they join the scheme, their wages must not drop below the national minimum wage.
As a company car is considered a privilege that is paid for by your employer, on top of your annual salary, employees who enter a company car scheme must also pay Benefit-In-Kind (BIK) tax. How much tax the employee will pay depends on the vehicle’s market price, income tax band, age of the car, fuel type, CO2 emissions, and engine size.
It's important to note that if your company car scheme includes fuel, you will also need to pay tax on your annual fuel allowance.
If you’re thinking about setting up a company car scheme but don’t know where to start, we have also created this guide to running a company car scheme that you will find useful.
What are the benefits of company cars?
There are plenty of benefits to having a company car, from low BIK tax rates to using the scheme as a recruitment incentive.