As an employee, which is more beneficial, driving a company car or taking a cash alternative and having your business mileage paid by the company? The answer depends very much on your particular circumstances. There are tax implications whichever option you choose.
Let’s have a look at the pros and cons for each option in detail:
Company Car
Some businesses, especially larger companies, provide company cars to their employees if the job involves a lot of driving. In these cases, the company either reimburses the fuel via set fuel rates or provides a fuel card. The employee normally has to reimburse fuel used for private mileage.
In general, these are the main pros and cons for accepting a company car.
Pros
- Maintenance costs are usually fully covered
- A new car every few years
- Some companies also pay for private fuel
Cons
- If you use your company car privately (including commuting), you’ll have to pay tax on it as it will be considered a “Benefit in Kind”
- The company either decides the type of car you get to drive for you or you get to pick from limited options
- You never own the car
The amount of tax you pay on your company car depends on a variety of components. These include the price of the car, how much access you have to the car, i.e. if it is a pool car, the type of fuel it uses and its CO2 emissions. To figure out how much tax you would pay for your particular situation, we can help with this. You’ll also pay tax on any fuel your employer pays for private use.
Cash Alternative
Some companies offer a cash alternative which can be up to £8000 per year and is usually paid in monthly instalments. See the general pros and cons for this option below.
Pros
- You can (usually) choose any car you want
- Cash injection can help your finances
- Your car is yours as an asset
Cons
- Will add to your tax bill no matter what as it is simply paid out as part of your salary
- You’ll have to budget for maintenance costs
- There might be restrictions on the types of cars you can choose if you need a car for business use
Taking the cash could work out more beneficial if you drive a lot of business miles in a car with good fuel economy, especially if the company pays the full 45p per mile mileage rate (for the first 10,000 miles).
How Alba can help
Here at Alba we can help with the decision which option is more beneficial for your particular circumstances. Schemes vary from company to company and the tax laws also change regularly. If you have any further questions about your personal tax and how benefits in kind can impact your income and tax, please do not hesitate to get in touch. You can call us on 01509 853779 or email us at admin@alba.uk.com