As an employer you may decide to offer the choice of a car allowance as an alternative to a company car. This is a cash amount given to your employee each month to help with their cost of leasing a car privately and using it for business. There are advantages and disadvantages to this to your business and it will depend on the business mileage the employee does. This contribution can be in the form of a taxable car allowance that is added to their gross pay or an HMRC system of Approved Mileage Allowance Payments (AMAPs) that applies for employees using their own vehicles for business journeys, as follows:
Cars and vans: on the first 10,000 miles in the tax year – 45p per mile
on each additional mile above this - 25p per mile
There is no reduction for low emission or zero emission vehicles currently
This becoming more popular but can also increase the burden on the business for higher mileage drivers. A cost analysis needs to be done in each case where the AMAP scheme is used.
Please be aware the Inland Revenue have changed their rates to reflect the lower cost of running an electric vehicle if you pay a fuel allowance on top of a car allowance for the purchase of the car.
The advisory electricity rate for fully electric cars is 4 pence per mile where an employee pays for his own fuel.
Hybrid cars are treated as either petrol or diesel cars for advisory fuel rates and these are as follows:
|Engine Size||Petrol ||Diesel|
|1400cc or less||10 pence||8 pence|
|1401cc to 2000cc||11 pence||10 pence|
|over 2000cc||17 pence||12 pence|
It is likely that a company car is likely to be renewed every few years and it’s possible maintenance and any repairs are covered by you in the business via a maintenance contract protecting you against any unexpected bills and hassle.
If you give an employee a car allowance, they aren’t restricted to the list of cars offered by you and this should also be considered if you have a brand style or a type of vehicle that you require them to have. A car allowance be tempting for an employee but they may not chose to select a new reliable vehicle and this should always be considered.
You should always be aware of grey fleet issues of employees using their car allowance to fund a vehicle being used on company business.