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4 min read

Company car vs cash allowance: what’s best for my business?

Running a business can be tough, so by putting in place a company car policy that suits the needs of your business as well as keeping your employees happy, you’ll have one less thing to worry about. But the different options can be confusing. Car or cash allowance? What about tax implications and additional paperwork? This article will steer you through the pros and cons of company car options.

And once you’ve sorted out a company car policy that works for everyone, it then leaves you free to get on with what you do best – running your business.

Company cars

Traditional company car schemes are relatively easy to run and could be the right option for your business. Working in partnership with a fleet services company, you’ll get to choose which cars to offer your staff – so, for example, if having a fleet of low-emission vehicles is important to you and your company, you’ll have the flexibility and control to make that happen. They can also assist you with MOTs, servicing, tyres and breakdown and can even provide insured leased vehicles.

One of the downsides is that if an employee leaves then you’ll either have a spare car on your hands or have to bear the costs of terminating the contract early – although if you’re hiring a replacement, you’ll have a company car ready and waiting for them so that they can hit the ground running.

For smaller companies who don’t have the luxury of a dedicated fleet manager, a company car scheme can be the ideal solution – from paperwork to maintenance and risk management, a leasing company will be able to provide tailor-made flexible options to suit all your needs. And should the worst happen, the leasing company will be able to assist you.

Cash allowance

Giving employees a cash allowance – an extra amount of money added to their salary payments – in lieu of a company car is another option you can offer your employees. Below are some of the advantages and disadvantages to providing a cash allowance.

A cash allowance gives your employees the freedom to buy – or lease – the car that they want. Your business will need to make sure that all the cars being used for company purposes are regularly maintained, your employees have the correct insurance and that their driving licenses are all above board. That means you’ll need to have systems in place to make sure that your duty of care responsibilities are being fulfilled.

Drivers who have a cash allowance may drive older, less efficient cars and their choice of vehicle may not fit with the company image that you want to portray. So you may want to make sure that employees taking a cash allowance are only allowed to choose cars that fit within certain criteria such as being no older than five years old, have less than 100,000 miles on the clock or are low CO2 models.

Cash allowances could relieve your business of a lot of admin work – as your employees will be responsible for sorting out their own car tax, servicing, replacement vehicles etc. However, to ensure this meets the business standards, you may need to implement regular checks.

If you do decide to go for cash allowances, employees can still have the option of a personal lease vehicle and can approach a leasing company to discuss their requirements.


It’s not the most exciting topic in the world, but when it comes to company cars and cash allowances, it’s worth bearing in mind the tax implications and associated administrative work involved with both options.

Under a company car scheme, the driver will have to pay tax as HMRC consider a company car to be a Benefit in Kind (BiK) Employers also have to submit a P11D form to HMRC at the end of each tax year for every member of staff who’s benefitted from a company car during the year.

When it comes to a cash allowance, as this is added to your employee’s salary, it’s subject to income tax and NI contributions.

If you are given the choice between a company car scheme or a cash allowance, and would like to find out more about the tax implications, or for further information visit HMRC’s website.

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