Perhaps the most frequently asked question is “Should my employees have a Company Car or should we offer a cash allowance?”
Cash or Car?
This question has become even more acute and complex given confused Government Policy, complex Benefit in Kind Taxation and the mess created by the introduction of the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP).
The factors that have to be considered in the calculation are:
- The P11d and C02 emmissions of the car.
- How much cash allowance are you prepared to offer?
- The employee’s salary?
- Whether tax is paid in Scotland or the rest of the UK?
- Are there any capital contributions or payments for private use.
- Contract start date? so the correct BIK rates can be applied over the correct tax years.
- Forecast total mileage and contract payments?
- Private/business mileage split?
- How much will the driver pay for insurance including business use cover?
- Do they have free private fuel?
- Business fuel reimbursement rate, AFR or AMAP?
- What is the actual fuel consumption of the car likely to be?
So it’s not as straight forward as extra salary, net of tax , compared to the Benefit in Kind Tax payable on the company car.
We have invested significant funds in developing an online calculator that compares the cost to the driver of taking the same car as a company vehicle or a Personal Contract Hire.
In many cases we have found employers paying too large an allowance, when compared to the Personal Contract Hire deals that are currently on offer.
It should be stressed however that by paying an allowance to an employee having their own car, does not absolve the employer of their Duty of Care for managing the vehicle.