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Is a company car worth it? – 5 surprising benefits

So, is a company car worth it? If you drive a car that is hybrid or electric with good range, almost certainly. Of course, back in the day, with tax breaks the way they were, all company cars were worth it. Yet with changes in the way a company car is now taxed, an increasing focus on CO2 emissions and the easy access to PCP finance, is a company car worth it today? Possibly. In fact, you could even get a brand new company car for almost free.

              Also read: Company Car or Car Allowance – which is best for you?

The company car is still seen as a sign that you’ve made it in your career. Or at least, you’re on your way up. It is often used by employers as a way to lure in and incentivise new staff. I’ve driven one for ten years and although a personal allowance is still an option open to me, I still choose to take the company car route. Here are five perhaps surprising reasons why.

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How company car tax works

First, let’s look briefly at how it all works.

Essentially, a company car is considered by HMRC as a perk. It is therefore taxed as something known as a Benefit in Kind (BiK).

As such, you pay tax (usually monthly through PAYE) on the car based on three main criteria:

1.Value – importantly, this is the list price and not what you paid for it. This also includes delivery charges, VAT and any optional extras (though not the first year’s road tax). The total sum is what HMRC will tax you on.

2.Your salary – you’ll now be taxed on that figure based on your tax band. That could be 20% as a base-rate tax-payer, 40% for higher rate and 45% for additional rate taxpayers.

3.Emissions (CO2) – petrol cars are taxed and diesel are hammered even more through surcharges. However, electric/hybrid cars have significantly reduced BiK tax implications, regardless of salary and value, as the government tries to get us all to go green (a good thing).

Now, this can end up being a scary figure and it isn’t right for everyone. But let’s consider the benefits that are often overlooked and also how we can get that number much, much lower. Let’s see if a company car is worth it.

1. No extra costs to budget for

Typically, the employer will look after the car and pick up all the extra costs. These are things you’d usually have to budget for yourself, even if you take a personal car allowance option. It can soon add up. Let’s take look at some rough annual figures:

Insurance £460
MOT £30
Road Tax £155
Servicing £450
Repairs £250
Tyres £250
TOTAL (annual) £1,595

(Costs are based on specific models at the time of writing. MOTs are not required until the car is three years old. Assumes warranty is in place and a major service is required each year. Tyres may not be required annually but should be budgeted for).

There are lots of caveats here and other factors involved, such as annual mileage and how often the car is replaced etc, but you get the idea. In essence, this could add up to an extra £132 a month that you don’t have to find if your employer covers these with a company car.

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2. No nasty surprises

For me, this is a biggy. I’ve had my fair share of bangers and also ‘nice’ cars I’ve paid for myself. When either goes wrong, it can hurt.

Of course, I didn’t always have the budgeting prowess I strive for now. So when things went wrong I felt the financial burden. And it was stressful.

Now, with a company car, I relax knowing that if it all goes Pete Tong, the company is picking up the bill. It takes all the stress away. I simply get a courtesy car turn up and carry on with my day. Nice.

3. Less stress

Time is money. And your time is valuable.

It’s not just the repairs that are taken care of. The Fleet Manager also organises when the car has a service, books a recall repair and haggles the insurance.

Those are all things that consume time and eat away at your productivity. Time that could be better spent earning you more money.

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4. Brand new car

Most company cars will be fresh off the factory line. So you get a car that is clean, with low mileage and has that oh so good ‘new car’ smell. Plus, you get regular access to the latest models.

Also, if you do lots of miles, the company will often sell the cars fairly frequently before their high mileage decimates any remaining value.

So, you may get a brand new car every few years or in many cases, even more frequently.

5. Pay almost nothing in tax!

The government want us to all go green, which is a good thing. So choose an all-electric car with a good range and you could almost get the car for free.

Cars are taxed partly based on their emissions. Whilst petrol and diesel car BiK tax ranges from 15% (think petrol Kia Ceed) to 37% (BMW 520 Touring SE Auto diesel), going all-electric with a range of over 130 miles could mean you pay just 1% BiK tax. Yes my friend, 1%!

In fact, in 2020/21, BiK tax on such vehicles was 0%! That meant, as long as the limited range suited your needs, you got a brand new electric car and paid nothing!

And whilst it’s currently at a measly 1%, it’s only increasing to a mere 2% until 2024/25. You simply wouldn’t get that benefit with a car allowance.

Hybrid is also a good option to consider, typically ranging from between 5-14%, depending on the range.

Let’s crunch some numbers

Let’s take a few popular company models and compare the BiK tax in 2021/22.

These are indicative figures and are based on 20/21 models and tax bands.

Car Value CO2 BiK Monthly tax
Basic Rate
Monthly tax
Higher Rate
Tesla Model 3
(long range)
£37,500 0mg 1% £8 £16
Hyundai Ioniq Hybrid Petrol 1.6 £24,800 103mg 24% £99 £198
BMW 520 Touring SE Auto £42,120 154mg 37% £254 £508

As we can see, if you’re a high earner driving a big, dirty ‘executive’ vehicle, it hurts. But drive something more modest, economical and hybrid, things are lookin’ up.

In fact, drive an all-electric car with a long-range and it’ll cost you only marginally more than a caramel oat-milk latte with an extra dusting of unicorn powder. You’ll barely notice it leaving your account.

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The downsides of a company car

Of course, it’s not all beer and skittles. So, let’s take a look at the downsides and see if a company car is worth it.

1. It’s not your car

This company car is not your assett. It belongs to the company. So if you move on and change job, you’re going to have to return it.

You’ll then need to have some savings or room in your budget to fund your own vehicle.

2. Some employers track cars

Because it’s their asset, many employers will fit tracking devices to company cars. It tells them all kinds of information about the vehicle. This ranges from fuel economy, to how well you drive and perhaps most importantly, where the car is or has been.

So, if you also use the car for personal travel, be aware that they know where you have been. And if you’re going somewhere you shouldn’t during company time, they know that, too. It’s an HR Managers’ wet dream.

That said, you can usually log on to a portal to mark a certain trip as ‘personal’. Theoretically, this masks the trip location details from the employer. However, the cynic in me is confident they can see this information if they really wanted to.

3. Limited choice

Employers often limit the choice of vehicle on offer. And as we now know, to get the maximum benefit from a company car scheme, you need to be heading down the hybrid or electric route.

So if your employer doesn’t offer these options, make sure you crunch the numbers.

4. Personal fuel can be taxed

If your employer includes personal mileage fuel as a ‘perk’, this can be seen as a Benefit in Kind. So, HMRC will tax this according to your income tax threshold, soon removing a significant portion of the ‘perk’.

Of course, many employers don’t offer this and you have to pay for your own fuel. For most people, you simply log in to a portal and mark the relevant trip. These are then deducted from your pay at a standard market pence per mile rate.

So, is a company car worth it?

Essentially, if you’re a high earner driving a big, dirty diesel, you’ll get clobbered. In this case, is a company car worth it will be down to how you view the other perks. If you fall in this bracket, weigh up the pros and cons of a company car vs a personal allowance.

But, go more economical, modest and hybrid, then things get much easier. And go all-electric with a good range and you could end up paying almost no BiK tax, yet keep all the juicy perks.

Personally, even with a car allowance option, I still choose the company car route.  For me, a company car is worth it. This is mainly due to the high miles that I drive each year and that the company provides a fuel card. I’ve come to think of it as ‘car-as-a-service’ – all the hassle of car ownership taken away with one monthly fee.

But what I really have my sights on, is an all-electric company car with a great range. That way, I get all the benefits of a company car with almost no tax. That’s hassle-free motoring for almost zero cost. And the polar bears are happier, which is good.

So, if your employer still offers the scheme and, more importantly, is open to providing all-electric vehicles, then don’t rule out the company car just yet. It could just save your budget and the planet.

Long live the company car.

Here’s to your Financial Fitness does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.