In this section
Company Car or Car Allowance?
Company Car, Car Allowance or Mileage Allowance – what is better?
The ultimate guide to company car benefits for employees and employers
In this Guide:
Other Points to Consider:
Types of Car Allowances and the Benefits to both Employers and Employees
Some business roles require the use of a vehicle more than others, and field sales is undoubtedly one of those. Your sales teams will be out and about following up leads and servicing existing clients much of the time, so you’ve got to figure out the most cost-efficient and beneficial way for them to do so.
There are three standard options available: a company car, a company car allowance, or a mileage allowance. There are pros and cons to each, including tax implications. Every case and individual preference of both employer and employee is different for a myriad of reasons.
Logic will prevail in most cases. For example, if you’re recruiting for an experienced field sales professional, the chances are they will have enjoyed a company car or received a car allowance in their previous role. It’s likely, therefore, that they would be looking for the same deal within the package you’re offering.
Offering a company car
Handing over a company car doesn’t end with you buying it and presenting the employee with the keys. Your business will still be responsible for ongoing repairs, MOTs (after three years old) and servicing. You’ll also be liable for vehicle insurance, driving costs (since your employee will still claim a mileage allowance to cover petrol), and the need to sell the vehicle when it reaches a certain age (or the employee leaves).
Most companies then operate a ‘fuel card’ where the fuel is paid by a credit facility at the pump, invoiced by the ‘fuel card operator’ to the employer, paid by the employer and the employee pays a contribution towards the fuel for their own personal usage. Alternatively, although rare, some get their sales team to expense all fuel and then claim back the receipts after deducting an amount for their own private fuel.
Tax implications for the employer
There are tax implications to a business for providing a company car. The business must pay Class 1A National Insurance on the benefit. However, you can reclaim a VAT element on fuel costs claimed by the employee, plus you can claim the cost of purchasing a car through capital allowances (that rate is dependent on the vehicle’s CO2 emissions).
If you go down the leasing route, you can only claim 50% of the VAT back. 100% is available only in cases where the vehicle is solely for business use.
Tax implications for the employee
For the employee, receiving a company car is a benefit in kind, so they are liable to pay income tax and national insurance on this at their normal rate. This tax and NI is payable through PAYE providing the employer notifies HMRC first and the tax paid is dependent on the type of vehicle and the P11d value.
Your staff can still claim a mileage allowance when they have a company car, with the amount depending on engine size. For petrol cars, the September 2019 Government advisory is 12 pence/mile for 1400cc or less rising to 21 pence/mile for over 2000cc. For diesel, it’s 10 pence/mile for 1600cc or less, rising to 14 pence/mile for 2000cc or more.
There are further benefits for the employee – they get a new car every few years, and they don’t have to worry about maintenance or servicing costs.
However, employers must also be aware of the Corporate Manslaughter and Corporate Homicide Act 2007 which makes it easier for the families of victims to make a claim against organisations if they are found to be negligent in the upkeep of the vehicle, or the driver is deemed to be careless. The fines appropriated are unlimited and apply to both companies operating company cars, or employees driving their own car, on behalf of your business.
As a minimum action point from this advice you must ensure that your company meets the required health and safety regulations and has a regularly reviewed policy on using cars for company business to ensure that you are adhering to changing laws. To find out more, the HSE has several guides for safe driving at work.
If on a mobile device, scroll right to see the cons
|Company Car Pros||Company Car Cons|
|It is probably what your prospective employees are expecting and salespeople like cars!||It could be tax-inefficient to both parties|
|You have control over the choice of vehicle||Large upfront capital cost to the employer|
|Control over maintenance and upkeep||If the employee leaves then you will be left with the car. Fine until the next employee is sourced, but if you choose not to replace then there will be a significant, redundant asset in your car park.|
|Control over H&S implications – see ‘Corporate Manslaughter’ above.||Your new target employee may be expecting a better car than you offer|
|Your staff will be representing you in a ‘newish’ car||Personal mileage needs to be administered.|
|If the candidate owns a car already, they can sell it and almost receive a ‘golden handshake’ for joining your business.|
A company car allowance
If your staff require a vehicle, an alternative is to offer a company car allowance which is added to their salary and paid monthly.
Receiving a company car allowance gives your staff the means to either lease their vehicle or buy one outright, using the allowance funds to pay for a loan. Rather than being presented with a make or model of your choosing, they can select whatever car they like, new or nearly new. Of course, they are then responsible for all insurance and maintenance costs and replacing the vehicle when it becomes economical to do so. Keep in mind your staff should have a private car that looks good and won’t embarrass your business when it’s out on the road, and most companies have some kind of policy such as the vehicle must be less than five year’s old or ‘no soft tops’.
You, as a business owner, can decide how much the car allowance should be and include it in the employee’s contract. Based on an average of projects worked by Aaron Wallis we suggest that benchmark figures, should be:
- £8,200 to £10,300 for Sales Directors, Commercial Directors and Business Unit Directors;
- £6,500 to £8,200 for Senior Sales Managers;
- £4,800 to £6,500 for Sales Managers;
- £4,200 to £4,800 for Business Development Managers;
- £3,600 to £4,200 for Field Sales Representatives.
As their employer, you will pay tax and national insurance on the car allowance at their normal rate as part of their salary, making the tax elements for both parties much more straightforward than operating a company car.
Most companies then pay a mileage allowance on top of the car allowance, which is claimed via expenses.
The mileage rate for those receiving a car allowance will be up to the maximum allowable – currently (in 2019) this is 45 pence/mile up for the first 10,000 per tax year, and 25 pence/mile after that), and is intended to cover the cost of fuel and the wear and tear created by business mileage. However, most companies that provide a car allowance then offer mileage rates at a lower amount; typically these are 10p to 25p per mile.
Anyone potentially driving more than 25,000 miles a year for business should consider opting for a company car because the ‘wear and tear’ and depreciation costs of this substantial mileage are unlikely to be met by the reducing mileage rate.
If on a mobile device, scroll right to see the cons
|Company Car Allowance Benefits||Company Car Allowance Disadvantages|
|Easy to administer, the tax and NI is calculated at standard rates and collected through payroll||The new employee may not have access to credit to purchase a car, or a poor credit rating so is unable to lease|
|You will need a process to ensure that the car that is representing your business is insured, well maintained, taxed and MOT’d (if over three years old)||You will pay the employer’s national insurance contributions on the car allowance|
|Easier admin – the burden of insurance, maintenance and tax is the responsibility of the employee||High mileage could make it cost-ineffective in comparison to a company car|
Mileage Allowance rate only
For many sales employees using a car is not usually part of their daily routine. However, occasionally they may be required to use a vehicle – perhaps for an ad hoc meeting, to drop off some samples or for an annual service meeting.
It makes no sense for an employee of this type to receive a car allowance, even less so a company car. However, they still need to be reimbursed for using their vehicle for work. In this case, they can claim the normal mileage rate (45p/mile up to 10,000 miles, 25p thereafter at current HMRC rates) without any tax implications. It’s up to the employee to make sure their insurance covers use for work, and you, as the employer, should have the insurance certificate on record. If the employee doesn’t have valid insurance for work then the employer should make a company vehicle, or hire car, available.
For the employee, this scheme can also be quite lucrative as the fuel required per mile and a contribution to the ‘wear and tear’ is unlikely to be above 20p per mile. Therefore, under current HMRC rules the employee can profit by up to 25p per mile for using their car, and it is not classed as a ‘benefit in kind’.
If on a mobile device, scroll right to see the cons
|Mileage Allowance Benefits||Mileage Allowance Disadvantages|
|Easy to administer – multiply the miles by the current HMRC rates and pay via expenses||High mileage could make it cost-ineffective in comparison to both the company car option AND a company car allowance plus lower mileage allowance|
|Tax-efficient for both employer and employee||You still have the legal and moral responsibilities to ensure that the employee’s car is taxed, MOT’d, insured, well-maintained and roadworthy|
|Hypothetically, a mileage scheme is a lower cost to the employer if it is a low-mileage employee||It is an alien concept to sales professionals that have had both a company car or car allowance. Therefore it could mean potential employees would decline your job offer.|
|The employee can legally financially benefit from the generous maximum HMRC rates without it being a benefit in kind.|
What about company vans?
There may be tax benefits for getting a company van rather than a company car. However, this must be job-related – your vehicle must be built for carrying goods or burden. Fully laden, the gross vehicle weight should not exceed 3,500kg. Work buses or minibuses do not count as vans, but double-cab pickups can be, which is currently making them an increasingly popular option as a company car. The bonus of a van for the employee is that everyone starts with the same fixed rate of tax, which might reduce under certain conditions. If the van is used for the employee’s commute to/from work there are likely to be further tax implications.
Points to Consider
Check before you buy
The rule of thumb for employers and employees is to check on the tax implications and benefits of any form of a company vehicle, company car allowance or mileage benefits. Different vehicles and the amount of usage will change from person to person. What’s beneficial for one will not be for another, and the government offers a useful company car calculator for speedy comparison.
Long-Term Car Hire
Many new employees will be nervous about taking on a long-term car lease. We have had many candidates that have always had company cars and are looking to join a company that solely offers car or mileage allowances.
Understandably they do not want to commit to a three-year lease contract which typically has significant penalties for breaking contract.
In this instance many of the traditional car rental firms, such as Europcar, Thrifty and Easycar, offer three or six-month contracts. Obviously the employee will pay a weighty premium for this that typically erodes all of a car allowance but does de-risk the situation in the short-medium term until the employee has passed their probation.
There is not a ‘one size fits all’ solution, and in some instances, a mileage allowance is better for both the employer and employee.
However, usually, a company car or car allowance is better for both parties if the expected mileage is going to be over 6-8,000 or so business miles per year. Also, a company car, or allowance, allows some control over both health and safety issues and the type of car that is used to represent your business. A car or car allowance can also be the benefit that clinches your perfect candidate.
We hope that this quick guide, in conjunction with the appropriate links to HMRC and HSE advice, provides you with the information to make the best decisions for your own individual company’s situation.
Watch a video summary on the decision from the Managing Director of Aaron Wallis, Rob Scott.
Submit your CV
Take the first step towards your new role today
With hundreds of jobs available, now is the time to look for your perfect position
From our blogRead more
Our employers say...
In an industry where people over promise and under deliver, Rob and his teams have consistently provided a high-quality service. It is great to deal with someone that has an excellent understanding of UK industry, and a passion for sales.
Sales Manager, TR Fasteners
I just wanted to thank you for your help with our recruitment process which went very smoothly and has – we hope – found us just the person for the job!
Managing Director, Citrefine International Ltd
Understood the type of person we were looking for and good follow ups - not too frequent.
Managing Director, bigHead Bonding Fasteners Ltd
Giles Phillips is a rare find in the minefield of sales recruitment; an honest and thoughtful recruiter who considers the needs of both the client AND the candidate to create perfect role matches. I look forward to working with him again in the future.
Marketing Director, City of London Police
Aaron Wallis has continuously provided us with suitable candidates that have been proactively sourced. Having used countless recruitment companies, Aaron Wallis are the only company that I can count on to deliver.
Managing Director, JARK Healthcare Recruitment
Rob’s knowledge of the recruitment industry and his thoughts and how to make it better for his clients have always been eye opening. I would recommend Rob to anybody who is looking for a professional, knowledgeable and flexible recruitment specialist.
CEO, Friday Ad Online Services
We were impressed not only by the quality of candidates you found for us but also the level of information, preparation and qualification you put into the process. You continually kept us informed of each person’s feelings about the process, which is very important but often overlooked. I am looking forward to working with your company again in the future.
Commercial Director, Incentive Facilities Management
I have always found Rob to be very knowledgeable about our industry sector, and it is refreshing to see after all of these years that Rob continues to quickly and accurately understand my requirements.
HR and General Manager, THK
I really liked the YouTube presentations which made the service seem both simple and accessible. The company came to see me, and my management team, at short notice to present their service and I liked the support and advice that I received about maximising the results from the applicant.
Managing Director, Leisuresec plc
Thanks for all your help during the recruitment process. I have been extremely impressed with Aaron Wallis especially when compared to other agencies we have dealt with. I really felt you grasped the type of person we required and found strong candidates.
UK Sales Manager, Nexcom
We appointed Aaron Wallis in February and the successful candidate, out of the six which Aaron Wallis introduced, was able to join Alphametrics before the end of April. The whole process took less than three months. I would recommend Aaron Wallis' services to others without hesitation.
Chief Financial Officer, Alphametrics
Rob is a true recruitment professional that goes the extra mile that I have never experienced from any other recruitment agency before. If you need sales people call Rob or someone in his team, as they really are experts in sales recruitment.
Sales Director, Inside Business
Since joining DSGi, Rob has been a supplier of permanent staff and has performed to an extremely high standard, successfully filling 98% of roles he has worked on. If anyone is looking for a good sales and marketing based consultancy with an informal yet professional approach, I would recommend Rob.
Senior Recruitment Consultant, DSG International
Giles is highly professional and was a pleasure to work with. He achieves excellent results through his personable skills and tenacity. I have no hesitation in recommending Giles to anyone who considers employing his services.
Commercial Director, G4S Government & Outsourcing Solutions
I have used Aaron Wallis to fill a number of our Sales Development Manager roles and I have found them to provide a very professional service. I will use their services again in future recruitment campaigns.
HR Business Partner, Greene King
I found Aaron Wallis to be very professional and efficient, taking time to understand the role and the type of candidate we were looking for. The candidates they put forward met our criteria and were of a high standard. The service they provided was exemplary and I would have no hesitation in recommending them, and will certainly consider using them again in the future.
HR Assistant, Fischer Connectors Ltd
Our candidates say...
Very good advice and support was given during the course of the interviewing process. Potential job seekers would be well advised to use this company whilst looking for their new career.
R. Speakman, Candidate
I can honestly say that the time and expertise you gave me was way beyond any other recruitment consultant I dealt with. You are a rarity in your industry.
S. Akers, Candidate
Fantastic service, helped me find my ideal job quickly and smoothly. Would highly recommend them.
C. Caine, Candidate
Aaron Wallis helped me secure a position I really wanted. Giles sought to keep me updated with all the details preceding interviews and after with feedback. I would highly recommend Giles and Aaron Wallis Sales Recruitment.
L. Taylor, Candidate
Less than two weeks after joining Aaron Wallis I was offered my new job. I got a £10,000 rise in my basic salary, car allowance, a laptop and many other perks, which will help to further my career. I definitely would not have found my dream job without the help of Aaron Wallis.
C. Hoy, Candidate
The Recruitment agent I used, Simon, was extremely helpful and really went the extra mile to ensure all of my questions were answered, and that I felt as comfortable and prepared as possible. Very professional company and would definitely recommend to others. Thank you Aaron Wallis!
A. Callaby, Candidate
Fantastic customer service, communication was brilliant, happy polite people to talk to, made everything a lot easier and smoother. Thank you for all your help getting me back in the work force, Keep up the good work :-)
K. Everitt, Candidate
The service provided by Aaron Wallis has been just great. I was constantly informed about what was going on with the process interview and the agent has always been supportive and kind to me.
L. Colagrossi, Candidate
Excellent service, very professional and friendly, would and have, recommended Aaron Wallis.
E. Heley, Candidate
Aaron Wallis (and in particular Rob Scott) have been fantastic throughout the recruitment process, and even a few months down the line, still continues to care. Rob clearly cares about each individual and has a wealth of knowledge and expertise, which shows in the work he does. Each candidate is not just a number, and the support received from Aaron Wallis has helped me get a career which I truly enjoy.
M. White, Candidate
Excellent experience from first contact to ultimately securing a suitable placement. Giles looked after me in a very professional and friendly manner. He used his expertise and experience to ensure I was put forward for the most suitable positions for my skill set and found me a new role very quickly. I can't recommend Aaron Wallis Sales Recruitment highly enough.
M. Green, Candidate
Aaron Wallis is an outstanding recruitment agency specialising in high calibre sales positions. I was working directly with Darren Dewrance who went above and beyond my expectations in sourcing me my perfect role. I was kept in regular communication with Darren and he worked extremely hard to secure my dream job. Highly recommended and Thanks Darren for all your expertise and hard work.
R. Sealy, Candidate
Aaron Wallis have provided me with an excellent service, Giles went out of his way to help me preparing for my interview and supported me through all the processes. If you need an agency to give you a fully professional and consultative approach to finding you a new career move, the Aaron Wallis can certainly provide this for you.
D. Richards, Candidate
Really excellent experience dealing with Aaron Wallis. Liam Oakes who helped me get a great job was brilliant. Kept me up to date during the process and offered great help and advice, and a thoroughly nice guy. Highly recommended!
J. Hathaway, Candidate
Good swift process with Aaron Wallis, informative regarding the role and the process was moved at a good pace with healthy interaction. Would recommend them to anyone pursuing a change.
S. Bartlett, Candidate
Aaron Wallis Sales Recruitment are a very friendly and professional recruitment organisation who listen to your needs, work with you and act on your behalf which sets them apart from many of their competitors who in my experience are willing to throw anything at you. We discussed my history, my preferences and my wishes - one opportunity was introduced. It was perfect. I start at the end of June.
R. Buckley, Candidate
I've had a really good experience working with Giles Phillips at Aaron Wallis. From initial contact to the finer details of securing the job, he has been very professional and a pleasure to work with.
M. Shutt, Candidate
Perfect from start to finish. Simon deserves a shout out. Best recruiter there is. If you need a job, this guy will get you one. He's like the super man of recruiters. Top man, can't recommend him enough.
M. Crisp, Candidate
A great recruitment company to work with. Excellent experience with Aaron Wallis through the entire recruitment process. The team was really professional and extremely helpful. Darren was a pleasure to work with. He was friendly, supportive and gave me great advice. Thank you very much!
A. Bauchet, Candidate
I have to say coming across and having dealings with Aaron Wallis proved to be very successful. Being highly experienced did not seem to count for much during my job search bit a conversation with Robert Scott gave me a real confidence boost and enabled to get a position at the age of 63. Great service!!!
D. Burgess, Candidate