Company Car or Cash Allowance?

At CarLease UK we deal with a substantial number of enquiries from company car users; people who have to drive for their job. Often they are faced with the dilemma when presented with a choice of staying in a company car scheme or opting out (frequently referred to as a company car or cash allowance). Although CarLease UK supply a large number of cars directly to businesses for use by their employees, there are good reasons as to why employees, if given the choice, would look to a company car or cash allowance. In particular, there are important car taxation/benefit in kind implications to consider (all of which we can advise upon on a consultative basis).

Company Car Or Cash Allowance | Choices Faced By Company Car Drivers

It is thoroughly important that, as an employee, you consider all factors before delving into the acquisition of a new vehicle. This doesn’t just relate to the more obvious considerations such as tax, mileage allowances, insurance or servicing but more subtle ones, for example a car which is fit for purpose and is in-keeping with company policy; a Mercedes cabriolet deal may not be the most appropriate for everyone.

What Car Allowance Do I Require | Allowance For Mileage

In the case of an individual company car driver electing to opt out of the company car scheme, the first part of the process is to understand the actual amount being offered to facilitate the car or cash (car allowance) arrangement.

It is important to note that a cash for car scheme is added to the annual salary of that employee and, as such, will be subject to the relevant rate of the employee’s personal income tax rate. For example if you receive an annual allowance of £6000.00 and you are a 40% taxpayer, you could receive just £3600.00 after tax. Clearly it is crucial to understand the amount being offered by an employer; ensure you use the link to HMRC in order to calculate your actual spending power.

As the car would be procured on a personal contract hire basis, there would also need to be thought given to the insurance cost for the vehicle (comprehensive and in your name) and any servicing or maintenance (your responsibility unless a dedicated package is included). Many drivers opting out of a scheme quickly forget to include these within an allotted budget when enquiring with CarLease UK.

Additionally, there are a couple of important facts which also need consideration. Firstly, the employee will no longer be subject to company car tax (or benefit in kind) and secondly, it may be possible to claim an allowance for mileage for business miles travelled. This essentially covers the costs for both maintenance and fuel.

CarLease UK have included a link to the HMRC website to help you understand the facts relating to allowance for mileage. Of course should you require any further guidance on any of the above, we are more than happy to assist.

Financing Your Car | Cash Purchase or Personal Car Leasing?

Without doubt we encourage most of our prospective customers to enter into a personal car leasing agreement. Ultimately, when you buy a car you undertake all risks for depreciation of the car/van and any subsequent resale.

At CarLease UK, we can clearly illustrate that personal car leasing is both financially beneficial and at the same time protects you from many of the risks of ownership, in particular a situation which provides certainty of cost. Speak to one of our account managers who will be delighted to help you make an informed decision.