A company car allowance is a benefit offered by some employers to employees to compensate them for using their vehicles for business purposes. The funding is typically paid in addition to the employee’s regular salary or wages. It is intended to cover the costs of maintaining and operating the vehicle, such as fuel, insurance, and repairs.
The two types of company car allowance and how they work
There are generally two main types of company car allowance: a fixed budget and a mileage allowance.
Fixed Allowance
A fixed allowance is a company car allowance in which the employee is regularly paid a set amount of money as compensation for using their personal vehicle for business purposes. The assistance is intended to cover the costs of maintaining and operating the vehicle, such as fuel, insurance, and repairs.
With a fixed allowance, the allowance amount is not tied to the actual number of miles driven or the specific expenses incurred by the employee. Instead, it is a flat rate paid to the employee regardless of how much they use their car for work. This can be a convenient option for employees who do not need to use their vehicle frequently for business purposes or prefer predictable compensation.
Mileage allowance
A mileage allowance is a company car allowance in which employees are paid a set rate per mile for using their vehicle for business purposes. The funding is intended to cover the costs of maintaining and operating the vehicle, such as fuel, insurance, and repairs.
With a mileage allowance, the allowance amount is based on the number of miles driven for business purposes. Employees are typically required to keep track of their business-related mileage and submit a report to their employer regularly. The employer will then calculate the allowance based on the mileage and the agreed-upon rate.
Mileage allowances can be a convenient option for employees who need to use their car frequently for work and want to be compensated for the specific expenses they incur. They are also a more cost-effective option for employers, as the allowance is only paid for actual business-related mileage rather than a set, fixed amount.
Receiving a company car allowance
Employees typically need to keep track of their business-related mileage to receive a company car allowance and submit a report to their employer regularly. The employer will then calculate the allocation based on the mileage and the agreed-upon rate.
Company car allowance and tax
It’s important to note that company car allowances are taxable income and may be subject to payroll taxes and other deductions. Employees should consult with their employer or a tax professional for more information on how company car allowances are taxed and how to report them on their tax returns properly.
