A company car can seem like a great perk to have but sometimes it can be a little restrictive. Many companies will let you have a small selection of cars, so if you don’t want one then taking a cash alternative may be the option for you.
In this article we explore the pros and cons for both choices and the important information to look out for.
Company car scheme
There are many benefits to opting for a company car. Probably the most prevalent is it gains you access to a brand new shiny car every three or four years and maybe a model that you wouldn’t have been able to buy new beforehand.
All of your insurance and maintenance costs will in most cases be included in the scheme too, leaving you with only the monthly tax bill and fuel costs to worry about. It is worth bearing in mind that company car tax is going up every year for most cars, though.
But one of the biggest benefits is the fact that the financial contract is between the leasing company/manufacturer and your employer, not you, so if you were to move firms you can leave the car behind.
As we have already stated, one of the biggest downsides for the company car scheme can be the restriction on choice.
Some companies will have a CO2 emission cap or a diesel-only policy and others may have solus badge deals where they only work with one or a few manufacturers to create more buying power and get the best deals. Convertibles will be few and far between on company choice lists, as will performance based petrol cars.
So you may not end up with the car you want, albiet you will still own a new car which is likely to be pretty well spec’d.
Benefits:
- If you change jobs you can walk away from the car
- New car every three/four years
- Insurance cover and maintenance costs covered
- You can plan your income, no unexpected bills just a set fee every month
Potential problems:
- Limited choice
- Company car tax monthly costs going up each year
- Could be limitations on what you use the car for in your company handbook ie: cannot take abroad
- You never own the car
Personal leasing
There are plenty of restrictions on company car drivers when entering into a company car scheme, but these restrictions are important for the company in keeping costs and risk to a minimum.
If you decide to take the cash to make your own arrangements for getting a new car, the first thing to be aware of it that the extra money will be subject to tax before it enters your bank account.
There are a number of finance schemes that are specially catered for company car drivers who choose the cash sum instead. Some also include insurance and maintenance costs so you can set up an affordable monthly payment to suit your budget. You can pick a leasing contract where the car will be legally yours at the end of the term too.
The majority of the best deals will require a modest deposit at the beginning of the lease, which could be a potential issue for some.
There is also the risk that your circumstances might change and you will still have the financial obligation to pay the leasing company whereas with a company car you could walk away from the car scheme if you left the company.
How much your company car allowance is will determine which of the two options is cheaper, but in most cases we would expect the company car scheme to make the most financial sense if you travel a fair amount of miles each year.
That said, there is the potential to save a bit of cash when you claim back miles you travel on business using the AMAP rate set by the government, which at the moment is 45p per mile up to 10,000 miles a year which aims to take into account fuel costs, maintenance and depreciation.
Benefits:
- No longer paying company car tax
- Freedom to choose the car that you want
- Range of finance schemes means you could own the car at the end of the lease
Potential problems:
- You will pay tax on the cash allowance
- Company could still impose restrictions if you wish to drive the car for business
- Financial contract tie-in
- Best deals may require a lump sum deposit
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