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Car or Allowance?

Guides


"Should I give my staff a company car, or a car allowance?"

When approached by clients on this subject, there are an increasing number of non-financial considerations to take into account these days. However, we shall look at these later.

That's because the prime concern tends to be -
financial considerations.

You need to be able to calculate how much the car will cost to run from both the company's point of view, and that of the employee - whether it's a company car on finance or owned/financed by the employee.


Company car >

Costs incurred by Employer
Running costs (without depreciation):
Total annual mileage x running costs per mile,
without depreciation (obtainable from the AA website)
less fuel cost for personal mileage
(where there is no fuel benefit)
Employer's National Insurance on Benefit in Kind:
Taxable benefit (from list price/ CO2 rating/ fuel type)
x Employer's NI rate
Annual lease payments:
Gross monthly payment x 12
Less VAT back on lease payments:
i.e. 50% of VAT on finance element of
lease elements reclaimable

Costs incurred by Employee
Income tax on benefit:
Taxable benefit x Employee's Income Tax rate
Fuel costs for personal mileage:
Fuel cost per mile (obtainable from the AA website) x personal annual mileage figure

Employee-owned car >

Costs incurred by Employer
Mileage claims paid:
- under 10,000 miles @ 40p per mile, and
- over 10,000 miles @ 25p per mile

Costs incurred by Employee
Running costs (without depreciation):
Total annual mileage x running costs per mile, without depreciation (obtainable from the AA website)
Annual finance payments:
Monthly payment x 12
Less Mileage claims received:
See 'Costs incurred by Employer'

>> Example of how an overall cost comparison might look

However

Figures discussed are pre-Corporation Tax - this layer of complexity has not been added to the calculations. A company would normally get a 100% Corporation Tax deduction for car's running costs. Rules governing tax deductions for capital/leasing costs changed with effect from 1 April 2009 - for details
click here.

You would also need to work out how much VAT the company could claim back on individual running costs. Some, like petrol, are VATable but others, like insurance and road tax, are not.

Turning now to
non-financial considerations

Just because an employee uses their own car for business doesn't mean that the company has no legal obligations. Companies are deemed more than ever before to have a 'duty of care' towards their staff.

Failing in your 'duty of care' when staff are driving on behalf of your business - whether in a company vehicle or their own car - can result in a fine and/or imprisonment, under existing health and safety legislation, let alone the impending Corporate Manslaughter Bill.

But what does 'duty of care' involve?

There are many and varied aspects. However, good procedures and record-keeping should provide as sound a defence as possible against any charges of 'at-work' road safety neglect. And, in practical terms, help minimise the risk that direct (financial/ human), and indirect (negative publicity) costs might be incurred as a result of a serious incident?

So, someone in your firm has to be responsible for the establishment and maintenance of your 'policies and practices', which will be different if your company chooses the company car route, or a cash-for-cars option.

And it is the additional work involved with employee-owned vehicles that can sway the decision. Elements of 'duty of care' more specifically aimed at own-car drivers include:

  • Maintenance of vehicles in a roadworthy condition
  • Insurance of vehicles for business use
  • Adequate roadside breakdown cover
  • The hiring of a replacement vehicles should drivers' own-cars be off the road for a few days
  • The suitability of own-cars for the type of business use their owners carry out (this incidentally is also applicable to company-car drivers)
  • The image of the company that own-cars convey to clients


Operating a company car policy tends to be seen as 'making life easier' when considering the need for:

  • Regular checking of licences of all personnel who drive on company business - graduated speeding penalties (2 to 6 points) mean that a driver could potentially lose their licence with just two offences, so you may consider this should be carried out every 4-6 months
  • Monitoring of all road accidents, from parking scrapes to serious crashes - which should aid identification of any required driver assessment and training needs
  • Insurance cover renewals
  • Tax disc renewals
  • MOT reminders


And the whole operation benefits from specialist assistance in the field of vehicle sourcing and finance, because up-to-date expert advice is available to:

  • give guidance on the various finance options available
  • produce car choice lists
  • acquire vehicles through a network of approved suppliers
  • liaise with drivers for selection advice and demonstrators



If you are interested in having one of our account managers contact you to discuss your requirements, then please fill in an enquiry form and submit:

>> Business enquiry form

>> Personal enquiry form

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