It’s common for people to have questions about the topic. But we’ve got all the bases covered, from what exactly is a company car to the details of choosing one.

What exactly is a company car?

To be honest, it’s just what it sounds like. As an employee of a company, you’re given a vehicle to use for your own private transportation, as well as for business. There are a couple of ways that this is done.

An employee can either choose from a limited list provided by the employer, or they can be assigned one. Sometimes, the company selects a number of the same vehicle in bulk to facilitate their employees’ jobs.

Cars that are offered to employees are typically utilitarian and are aimed at helping individuals complete their duties, such as a regional sales manager who might have to commute to different locations. But many times, it's a benefit available to people of a particular post.

How are these cars financed?

When a company buys cars, the management must deal with problems in-house. For this reason, some organizations lease cars. Leasing options helps break down the amount that a business needs to pay to acquire a fleet of vehicles. The lower monthly costs frees up funds that could be invested elsewhere to help the company grow.

Another option- car allowance

Employers are now offering another alternative, known as a car allowance. In this case, a cash allowance is added to the annual salary so that individuals can buy or lease a vehicle privately. A firm offers employees the perks of owning a car without having to purchase or manage a fleet of automobiles themselves.

Individuals may be given a lump sum every month. The amount is approximately the same as that which the employer would have paid to lease the same car. If there are no parameters around the age or type of car, the employee can choose to drive something older and pocket the extra cash.

What are the advantages of owning a car given by employers?

Getting a car from the company is a desirable job perk. Besides this, there are other advantages as well.

1) You get to drive a nicer car for less money ;)

2) You can get an upgraded model every three or four years.

3) The employer typically covers insurance, servicing, and maintenance.

4) You aren't personally tied into a financial contract.

5) You don’t own a vehicle, so no depreciation to worry about.

It’s a great incentive. Certain posts receive this benefit. Employees could work with dedication to acquire promotions and qualify for more perks. Perks like these can attract the best candidates to a company.

What are the disadvantages?

Unfortunately, like everything else in life, there are a few disadvantages as well. Employees need to be aware of them before they decide to accept a car or opt for an allowance.

1) You may not get to choose an automobile.

2) You never own the car, so if you lose your job, you don’t have a set of wheels.

3) Some cars are comparatively more expensive to lease than others.

4) Consider what value a car offers in financial terms. Even if the employer covers repair bills, road funds, and insurance, most employees will have to pay the tax associated with such a car.

Tax rates can be expensive for high-value vehicles.

How does the company car tax actually work?

If a company offers an employee a car, it can be used for personal transport outside of work as well. Remember that the commute to and from work is also counted as a personal journey.

However, if you don't know how to drive one, instructors are always there. Talk about driving lessons, ezlicence is the solution provider as you get to choose the verified driving instructor online. 

But because the employer provides the car, it’s considered to be a ‘perk’ on top of the annual salary. So it is also referred to as a ‘Benefit In Kind’ (BIK). And a tax will need to be paid.

The BIK tax rate on such a car is based on the following:

1) The personal tax bracket

2) The age of the car

3) The fuel type

4) The CO2 emissions

5) The engine size

6) The list price of the vehicle (also known as the P11d value of the car)

Note: To incentivize businesses to invest in environmentally-friendly automobiles, the Government offers better BIK rates for low-emission cars. Further changes in BiK rates will aim at encouraging companies to consider electric vehicles more than other types.

Is it worth it?

At times, the high cost of taxes on a company-provided vehicle can be so high that it offsets a budget. That’s when people wonder if it’s worth having one. Before we go any further, there are specific scenarios where people are exempt from paying these taxes. This includes:

1) You are the proprietor of your own business

2) The car is adapted for mobility reasons

3) Your vehicle is not used for personal use

If a car is used only for business purposes, then there is no tax. So that it must remain on the business property overnight and on weekends. However, it can be used to travel to meetings, to meet clients, shared by employees for business reasons, etc. But as mentioned before, this does not include the commute to and from work.

Ways to reduce the tax

The CO2 emissions of the car influences the tax that you have to pay. So one of the easiest ways to reduce the amount is to pick a vehicle with low emissions. A sure way to get a low tax rate is to go for a zero-emission, electric car. But this depends on how many miles you need to travel.

There are a variety of low-emission automobiles on the market, ranging from city cars to executive saloons. Nissan Leaf, Toyota Prius, Volkswagen e-Golf, BMW 3 Series Saloon 330e, Porsche Panamera E-Hybrid, and Mercedes-Benz E-Class are just a few examples to look into.

Another way to lower the tax is to get a car with a low P11d value. To reduce the P11d value, simply select a vehicle that costs less. This could translate to a compromise on the model. Some cars with low P11d value are Smart Fortwo, Toyota Avensis Saloon, Nissan Juke, Fiat 500C Convertible, Skoda Fabia Estate, and SEAT Ibiza Sport Coupe.

Final thoughts

There are times when it’s wiser to own a company vehicle, and others when an allowance could be better. If the tax can be managed - or reduced, holding onto a vehicle that can be maintained and serviced through your employers can be a great option. But the decision rests entirely on you. So make an informed choice and consider what’s best for you.

 

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