In the UK, car allowance is considered a benefit; as such, it is taxed. This tax is applied at the same rate as your income tax. You pay tax on the company car’s value, which depends on the vehicle’s cost and the type of fuel used. However, if your employer pays for fuel you use for personal journeys, you’ll pay tax on this separately.
For those unsure, HMRC has a Company Car and Car Fuel Benefit Calculator to estimate the tax owed concerning a company car.
What is a company car?
A company car is a vehicle owned or leased by a business and made available for the use of its employees, typically for business-related purposes. This can include travelling to and from meetings, visiting clients, or running errands for the company. Company cars may be used exclusively for business purposes, or they may also be used for personal use by the employee, depending on the terms of the arrangement. In some cases, the employee may be required to pay a portion of the associated costs using the company car, such as fuel or insurance.
Different types of a company car allowance and company car policies
There are several types of company car allowances that an employer might offer to their employees:
Cash allowance
This type of allowance is a fixed amount of money that an employee can use to cover the costs of using their vehicle for business purposes. Employees are responsible for paying for their fuel, maintenance, and insurance.
Reimbursement
In this case, the employee is responsible for paying for the costs of using their vehicle for business purposes and then submitting receipts to the company for reimbursement.
Company-provided car
The company provides the employee with a company-owned vehicle that they can use for business purposes. The employee is responsible for fuel and maintenance, but the company may cover the insurance cost.
Car allowance and company-provided car
The employee is given a cash allowance and has access to a company-owned vehicle for business purposes.
It’s important to note that the specific terms of a company car allowance will vary depending on the employer and the employee’s job duties. It’s always a good idea to review the terms of any company car allowance carefully before accepting it.
