Cash vs Car who wins?
Deciding between offering employees a cash allowance or a company car depends on company priorities, employee preferences, and cost-effectiveness. Here's a breakdown of some of the factors to help you guide the choice:
Advantages of a Company Car
- Cost Savings for Employees: The company covers purchase, insurance, maintenance, and depreciation, allowing employees to avoid personal vehicle expenses.
- Consistent Branding: Company cars give a uniform look and feel, especially beneficial for client-facing roles where brand perception is key.
- Better Control Over Vehicle Quality: Ensures that employees drive well-maintained, safe, and possibly environmentally efficient vehicles, reflecting well on the company.
Downsides of a Company Car
- Higher Direct Costs for the Company: You shoulder ongoing expenses, including insurance, repairs, and depreciation and whilst these can be mitigated you can still get "surprise" one-off costs.
- Less Flexibility for Employees: Employees may feel limited by the car options provided, as they might prefer different models, sizes, or features or even already have access to a car at home.
Advantages of a Cash Allowance
- Flexibility for Employees: Employees can choose their own vehicles or use the cash for something else, which can be a morale booster and a way to attract talent.
- Lower Administrative Burden: Providing a cash allowance eliminates the need to manage vehicle purchases, maintenance, and repairs.
- Cost Predictability: A fixed monthly allowance is easier to budget for compared to the variable costs associated with company cars.
Downsides of a Cash Allowance
- Tax Implications: Cash allowances are often taxable for employees, which can reduce the net benefit and require careful communication.
- Less Control Over Vehicle Standards: Without company-provided cars, you lose control over vehicle quality, which can impact brand perception and increase Corporate liability if employees drive subpar vehicles.
- Obligations Don't Disappear: The company still has to ensure any vehicles used for business purposes are insured, maintained and are suitable for the job this becomes more difficult when they are not company vehicles.
Key Considerations
- Tax Efficiency: Some Company cars are often more tax-efficient in the UK due to lower Benefit-in-Kind (BIK) taxes, especially for Electric and other low-emission vehicles.
- Employee Preferences: Younger or urban employees may prefer the cash for flexibility, while those with longer commutes may appreciate the convenience and savings of a company car.
- Company Culture and Image: If brand visibility is essential, company cars help control that image. If autonomy and flexibility matter, cash allowances might better align with your culture.
- Financial Modelling: Policies should be developed using detailed financial modelling to ensure Fleet Total Cost of Ownership (TCO) is considered alsong with all aspects of taxation including income tax, national insurance, corporation tax and VAT for example.
- Tax & Regulatory Changes: Whatever the decision then it should be reviewed annually to ensure its still correct as the Fleet and Company car environment changes on a regular basis.
Final Thoughts
- Company Car: Best when brand control and employee convenience are priorities.
- Cash Allowance: Ideal when flexibility, employee choice, and lower administrative overhead are more important.
Ultimately, the "winner" depends on your company’s specific needs, but a hybrid model, offering employees a choice, is increasingly popular as it accommodates a diverse range of employee preferences.
LetsTalkFleet can provide independent impartial advice on the most efficient cash versus company car strategies for your business so please get in touch with any specific enquiries you have, we are available on 0330 056 3335 or via email contact@letstalkfleet.co.uk .