Tax Discussion: Company Car or Car Allowance?

Company cars have long been the major contributor to employee benefits packages, but with taxes on company cars increasingly complicated, a lot of drivers are opting for a cash alternative and instead take on attractive, competitive PCP contracts.

As cheap accountants in London, we work with clients to balance the motivation value of providing advantages in a similar way (BIKs) for workers who have wider tax implications, both for business and therefore the employees, and the way each are often optimized.

Company Car or Car Allowance?

In recent years, the logic has become established that car allowances for your wallet are better than cars for a company, and allow for a larger choice, but puts an extra burden on the employee to keep track of car miles to make best use of the arrangement.

A PCP agreement must be concluded with a car allowance. The most common route employees choose.

The credit paid for the PCP is limited to the vehicle's depreciation over the period of the agreement and not its full value.

The credit paid for the PCP is limited to the vehicle's depreciation over the period of the agreement and not its full value.

This keeps monthly costs low, but also binds the employee into a several-year, fixed-term agreement that can be a risk to those whose jobs are not seen as safe.

When the agreement is concluded, the customer is able either to hand in the keys, purchase the vehicle or start a new PCP agreement. In the meantime, you can claim your employer's corporate miles or the income tax account that you incur.

The company car provides greater security compared to a PCP deal because the driver does not have to worry about maintenance, insurance or service costs.

The representative is taxed on the theorical estimation of the benefit, a mix of the rundown cost and the vehicle emanations from an expense perspective, and whether he/she pays for the private fuel utilized as opposed to being burdened on the measure of the money stipend.

Why is it Beneficial to Get a Car Allowance?

Many people are opting for a car cash allowance instead of a corporate car. This allows you to drive your own vehicle while receiving a mileage-based cash reward from your employer. Inland Revenue Approved Mileage Rate is the term for this (IRAMR).

The majority of workers sign a PCP agreement while earning a car allowance. The measure of credit taken out for the PCP explicitly covers the vehicle's deterioration throughout the arrangement, instead of its full worth.

This not only lowers the monthly expense, but it also binds the employee to a multi-year fixed-term contract, which can be a hazard to those whose jobs are not considered secure.

When the agreement's term expires, the employee has the option of returning the keys, purchasing the car, or entering into a new PCP agreement.

Meanwhile, workers have the choice of claiming company mileage reimbursement from their employer or deducting it from their tax bill.

In contrast to a PCP contract, the company car offers more protection, and the driver is relieved of concerns about car maintenance, insurance, and service costs, among other things.Instead of being taxed on the amount of the cash allowance, workers are taxed on the theoretical value of the gain, which is a combination of the list price and the vehicle's emission, among other factors.

What if I own my own business?

The choice changes incredibly in the event that you own your own organization and the assessment rate fluctuates significantly as indicated by the conditions and the vehicle you need to drive

Cars leased or bought by a company may be seen as a tax-deductible cost to lower the corporation's income tax.

Small-emission cars too attract increased allowances, so it is important to choose the right car.

In addition, registered companies can claim a portion of the VAT paid on the leasing or buying cost.

Whether drivers go for a business car or for the lease deal is primarily affected by the scheme of your company car.