Which is better, a company car or a car allowance? Considering purchasing a business-related vehicle can seem difficult, but it doesnt have to be.
Weighing up the pros and cons between a company car and a car allowance should help you decipher the most suitable decision for your circumstances. To learn more as we discuss a company car vs a car allowance in the UK, continue reading.
What is a Company Car Scheme?
A company car scheme is when an employer provides an employee with a vehicle that can be used for both work and personal purposes.
The scheme is particularly useful for employees who require either a car, van, or other type of vehicle for work-related travel. Whether it’s part of your job to visit customers and carry out repairs on their property, or deliver goods across a large area, having a company car can prove beneficial.
What is a Car Allowance?
Car allowance is an alternative to being given a company car – instead, an employer provides a set amount of funds to an employee for them to cover the costs of buying and using their own vehicle for work.
Typically, the amount of money given to cover the employee’s vehicle is added to their overall salary, leaving them fully responsible for buying, leasing, and taking care of their vehicle. With the funds provided, employees can also cover fuel costs, repairs, and insurance.
Company Car vs Car Allowance
Apart from how they’re provided by an employer, several other key differences set a company car and car allowance apart. Let’s take a look.
Company Car | Car Allowance | |
---|---|---|
Ownership | The employer either owns or leases the vehicle | The employee either owns or leases the vehicle |
Choice | The vehicle is usually chosen for the employee | The vehicle can be chosen by the employee, providing more freedom of choice |
Insurance Responsibility | The employer is responsible for the insurance | The employee is responsible for insurance |
Repair Costs | The employer is responsible for repairs | The employee is responsible for repairs |
Taxation | Subject to Benefit-in-Kind (BiK) | Taxed as regular income (as you receive funds for the vehicle through your salary) |
The Advantages and Disadvantages
Breaking down the pros and cons should help decide which is a better option, a company car or a car allowance. Let’s take a look at the main advantages and downfalls of each.
Advantages of a Company Car
- You don’t own the vehicle, so you won’t have to worry about maintenance costs
- Company cars are often renewed every couple of years
- Financial responsibility falls on the employer, not the employee
Disadvantages of a Company Car
- Limited when it comes to vehicle choice, as the employer chooses
- Employees don’t own the vehicle and must return it if they ever leave the company
- Employees are required to pay BiK tax on the personal use of the vehicle
Advantages of Car Allowance
- Employees have freedom of choice when it comes to choosing a vehicle
- Employees have the chance to shop around as they have more control over costs
- Car allowance is typically taxed as part of the employee’s salary (which could result in lower tax payments compared to BiK tax, depending on the employee’s tax situation)
Disadvantages of Car Allowance
- The vehicle is at depreciation risk, ultimately reducing its value if resold
- Employees will need to cover maintenance costs and fuel, which can prove expensive over time
- Employees must pay National Insurance (NI) on their car allowance
Which is Better: A company Car or a Car Allowance?
So, which is better, a company car or a car allowance? Ultimately, it’s a question of finance. Weighing up the benefits, if you’re financially able to insure, service, and maintain a car, an allowance is a good way to go.
This way, you could claim back business mileage from your company – however, it does mean that you’ll need to keep up-to-date travel and distance records. The main advantage of a company car is that there’s no purchase price for yourself, and things like MOT, insurance, and business-related fuel costs are all covered by an employer.
However, the main issue with a company car is the additional tax expected (BiK). The amount of BiK tax is based on emissions and list price – HMRC has a standard rate list to work this out. It’s also important to note that company vehicles running on diesel will likely be more heavily taxed.
When considering purchasing a business-related vehicle, it would be best to discuss with an experienced accountant about this first.
Expert Tax Advice for Businesses
Discussing business-related purchases with a trusted accountant is always advisable – especially when it comes to weighing up tax implications. At LJS Accounting Services, we have a team of knowledgeable accountants on hand to provide expert tax advice as part of our wide range of services.
We can help you decide between a company car and a car allowance while weighing up and calculating the possible tax implications that each option could face. We don’t want our clients to face any tax burdens, which is why we’re here to assist you.
Our award-winning services have been helping clients better understand their taxes for over 10 years – making us highly experienced within the industry.
If you require assistance from our accountants, we encourage you to contact us today. We look forward to speaking with you soon!

Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.