- Attractive PCP offers may persuade you to ditch your company car
- Greater choice of cars available and you can own it at the end
- It may prove to be a costlier option with restrictions still imposed
Every commercial break television channels are buzzing with car adverts, many enticing potential punters with tantalisingly tempting Personal Contract Purchase (PCP) deals.
That’s all well and good for private motorists but they’re not much use to the nation’s company car drivers, or are they if you’re an employee offered a generous cash allowance alternative?
Cash allowances grew in popularity in the early 2000s when company car charges switched to being based on CO2 emissions. Initially, they were popular with commuters who chose to travel using public transport but the take-up grew to include people who wanted to have more freedom to decide how to spend that aspect of their remuneration package – which includes buying cars.
PCPs appear to offer more freedom
On the face of it, buying a new car on a PCP arrangement using the money you receive each month from your cash allowance offers advantages.
Not only do you have the option to buy the car with the final balloon payment at the end of the deal, you have freedom to choose any car you like, rather than the handful you’re restricted to via your firm’s predetermined company car scheme.
This is worth investigating further with your fleet manager, as it may only be true to a degree.
Restrictions could still be applied
If you’re planning to use your own car for business mileage it becomes part of your fleet manager’s ‘grey fleet’ meaning the organisation may still be able to impose restrictions, so it’s vital to confirm the specifics before signing on the dotted line of a new finance agreement.
You may fancy a sporty coupe or a convertible for wind-in-the-hair fun while you’re driving for work. Your fleet manager may have other ideas, citing that for business use your car needs to have rear seats and back doors – that’s where cars such as the BMW 4 Series Gran Coupe come in handy.
It’s a similar story with CO2 emissions with the fleet manager insisting you opt for a car with a low figure. Many businesses seek to reduce their carbon footprint but low CO2 doesn’t exclude more premium choices, as the Mercedes-Benz C350e plug-in hybrid confirms at 48g/km.
A business’s duty of care may mean the imposition of a minimum of five stars in a Euro NCAP crash test. As most new cars now achieve the top rating this shouldn’t restrict you too severely, but it’s worth checking with your fleet manager whether there are further specifics to adhere to, such as a high percentage score in the Safety Assist category which rates crash prevention equipment. Cars such as the Volvo XC90 with 100 percent in this section will clearly appeal.
Those last two restrictions in particular may scupper your intentions of investigating the classic car route with your cash allowance.
Additional costs of running your own car for business use
Although many car companies offer servicing bundles when you take out a PCP, even with the cost reduced and spread over the duration of your finance agreement, it still represents an outgoing you don’t have to pay with a company car scheme.
Taking the company car option also means the firm will pick up the tab for insurance, covering you for both personal and business mileage. Adding business use on to your otherwise conventional personal policy can add significantly to its cost, and it’s worth noting that free insurance packages with PCP offers don’t usually cover you for business miles.
It's also important to note that if you opt for the allowance, it will be added to your salary and will be subject to tax.
If you’re opting out of a company car scheme the good news is you can arrange for your fleet manager to prove your no-claims discount for your personal cover so you won’t have to start from scratch with an overly inflated premium.
Don’t forget that if you use your own car you’ll also be responsible for paying the annual VED car tax bill as well as footing the bill for any minor body repairs which would otherwise be covered by taking the company car option.
So which option makes more financial sense?
Assuming you’re a 20 percent tax payer for company cars, how do a selection of popular models compare?
Select the latest Audi A4 Saloon in 2.0 TDI Ultra Sport guise and its 99g/km CO2 output places it in the 17 percent BIK band, equating to monthly payments of £99.
Place a £3,000 deposit for the same car on a PCP deal with a 20,000-mile cap and you’ll face a £407 monthly bill for three years with a final balloon payment of £13,049.
What about the evergreen Ford Focus Hatchback in 1.5 TDCi 120PS Titanium Nav form? The same £3,000 deposit and a mileage cap of 24,000 miles results in a monthly PCP bill of £316 over three years, with a final payment of £5,597.
The same model as a company car is again in the 17 percent BIK band and will cost just £60 each month.
Maybe savings could be had with a smaller car: a five-door Skoda Citigo 1.0 MPI 60PS SE can be bought on a PCP for £93 per month over three years with a £2,845 deposit and a £3,389 final balloon payment.
As a company car in the 16 percent BIK band the Citigo will cost you just £25 each month.
Electing for the PCP route means that you’ll receive more in fuel allowance for business miles under the Mileage Allowance Payments (MAP) scheme rather than the Advisory Fuel Rates (AFR) system for company cars, as there’s an additional fee factored in for maintenance.
Drive a 2-litre diesel-fuelled company car and you’ll receive 11p per mile under AFR for business miles, but the same car on a PCP agreement will net you 45p per mile under MAP for the first 10,000 miles, dropping to 25p per mile thereafter.
But there’s a catch: while an annual business mileage of 20,000 is typical for a company car driver, your fleet manager may limit your ‘grey fleet’ PCP car to 10,000 miles of business use, even if your finance agreement permits you to go significantly higher than that.
Don't forget, if your employer pays for all your fuel, both for private and business, you'll be required to pay fuel benefit tax in addition to BIK tax for the car.
Company cars remain the cheaper option
Taking the cash option certainly gives you a wider variety of choice – if not complete freedom – when choosing to buy a car via a PCP over the company car option, but it’s unlikely that going this route will save you money. You do have the option to own the car at the end of your agreement, though.
It’s also vital you check with your fleet manager beforehand to ensure you understand the limitations the business may impose on you for driving a ‘grey fleet’ car.
The company car’s death knell hasn’t been sounded yet, despite the proliferation of PCPs. If you’re taking the cash alternative then accept you’ll probably pay more in motoring costs but have greater financial liquidity for home improvements and holidays.
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