A guide to choosing between a company car or a personal allowance - which is best for you?
When it comes to company benefits, those affiliated with your vehicle are among the most keenly sought after.
This is especially true for individuals who are forced to travel consistently as a feature of their job role, whether this is between individual branches or when visiting clients across the country.
The issue is that the majority of firms offer staff the option of either a company car or a financial allowance to use their own vehicle, and the choice that you make can have a significant bearing on expenditure and any financial savings that you are able to access.
The company car: The benefits and pitfalls
So which of these two options would be more beneficial to you as an individual? While this depends primarily on the nature of your role and exact personal circumstances, there are generic points to keep in mind when making a decision. In terms of being offered a company car, the benefits and pitfalls include: -
Decreased financial responsibility: One of the most significant benefits of a company car is the fact that it is owned by your employer. This means that they are liable for the majority of repairs and day to day usage costs, which minimizes your expenditure considerably over a prolonged period of time.
In addition to this, the lack of ownership also means that you will not suffer from a depreciation of value, which could see the vehicle lose up to 50% of it's worth within 3 years of its purchase.
Increased tax liability: While being released from the burden of ownership does make the typical company car scheme attractive to employees, it also qualifies as a taxable concern.
Since 2002, company car drivers have been forced to pay tax based on the quantity of carbon dioxide that this emitted from their vehicle, and this in line with a wider government drive to create a more sustainable environment.
The car allowance
Another restriction of owning a company car is that you are often restricted in using it outside of work, and there may also be complications in the event of an accident of collision that takes place through the course of personal usage.
Another option available to employees is the car allowance, however, and this allows staff to use their own cars while be compensated for everyday operational costs.
A tax free allowance in line with Inland Revenue guidelines: When companies offer you an allowance to run your own vehicle, this is based on a tax free mileage rate that is determined by the Inland Revenue.
The allowance is 40 pence per mile for the first 10,000 miles and 25 pence for every subsequent mile travelled, and this remains unchanged regardless of the type of vehicle that you own or operate.
The cost of wear and tear: Given the increasing drive among citizens to reduce their carbon foot print and help promote environmentally friendly principles, there are a growing number of people who are looking for alternative methods of getting to work.
If you do need to use your own vehicle to travel to a place of business every day, however, then a car allowance does not include the costs of any repair work or maintenance that maybe required to negate the effects of inevitable wear and tear.
Which option is best for you?
These unique benefits and pitfalls make your decision a difficult one, especially in line with changeable personal circumstances.
A good method of calculating which option best suits you starts with considering the monthly car allowance being offered by your employer, and incorporating the tax savings afforded by not driving a company car.
To balance this, consider the servicing and maintenance costs affiliated with using your own vehicle, and make estimated calculations based on these items of criteria. This should help guide you to the correct decision, and one that enables you to make significant annual savings.
Author Bio: Lewis Humphries is a professional researcher and blogger for Carfinance247.