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The Pros and Cons of Company Cars: A Comprehensive Guide

  • 17 Mar, 2020
The Pros and Cons of Company Cars: A Comprehensive Guide

Curious about company cars? Whether you're an employee considering the perks or an employer looking to offer this benefit, understanding the ins and outs of company cars is essential. In this comprehensive guide, we'll cover everything from what a company car is to financing options, advantages, disadvantages, and how company car tax works.

We'll also provide insights on reducing company car tax. By the end, you'll have a clear understanding of the topic and be able to make an informed decision.

What is a Company Car?

A company car is a vehicle provided by an employer for both business and personal use. Employees can either choose from a limited list or be assigned a car by the employer. These cars are typically utilitarian, serving specific job functions or provided as a benefit for certain positions.

Financing Options for Company Cars

Employers can finance company cars through different methods. Leasing allows businesses to acquire a fleet of vehicles by breaking down the costs into manageable monthly payments. Alternatively, employers can offer a car allowance, where a cash amount is added to the employee's annual salary, allowing them to purchase or lease a vehicle privately.

Pros of Company Cars

Owning a company car comes with several advantages, including:

  1. Cost-effective access to nicer cars
  2. Opportunity to upgrade to a newer model every few years
  3. Insurance, servicing, and maintenance coverage by the employer
  4. Freedom from personal financial contracts
  5. No worries about vehicle depreciation

These perks can attract talented candidates to a company and serve as a valuable job incentive.

Cons of Company Cars

Despite the benefits, there are a few downsides to consider:

  1. Limited choice in selecting a car
  2. Lack of vehicle ownership, resulting in no personal transportation if employment ends
  3. Higher costs for leasing certain cars
  4. Tax implications, including the tax on high-value vehicles

Being aware of these disadvantages is crucial before making a decision about accepting a company car or opting for a car allowance.

Understanding Company Car Tax

Company cars are considered a "Benefit In Kind" (BIK) and are subject to tax. The BIK tax rate depends on factors such as personal tax bracket, car age, fuel type, CO2 emissions, engine size, and the list price of the vehicle. To encourage environmentally-friendly vehicles, the government offers better BIK rates for low-emission cars, with further changes aimed at promoting electric vehicles.

Is It Worth It?

Determining whether a company car is worth it depends on various factors, including the cost of taxes. However, certain exemptions exist, such as being a business proprietor, having a car adapted for mobility reasons, or exclusively using the vehicle for business purposes. Evaluating individual circumstances and weighing the pros and cons is crucial before making a decision.

Reducing Company Car Tax

To reduce company car tax, consider the following strategies:

  • Choose a vehicle with low CO2 emissions, such as an electric car.
  • Opt for a car with a low P11d value, which reduces the taxable amount.
  • Explore low-emission models like the Nissan Leaf, Toyota Prius, Volkswagen e-Golf or Mercedes-Benz E-Class.

Deciding whether to own a company car or opt for a car allowance requires careful consideration of the advantages, disadvantages, and tax implications. By understanding the financing options, tax factors, and strategies for reducing company car tax, you can make an informed choice that aligns with your needs and circumstances. Remember to evaluate what's best for you or your employees before making a decision.

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