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What is a Typical Car Allowance in 2023
As the cost of living continues to rise, so does the cost of owning and maintaining a car. This can be a significant expense for many people. But what is a typical car allowance in 2023?
What Should a Car Allowance Cover
A car allowance is a payment made by an employer to an employee to cover the costs of using their own vehicle for work-related purposes.
Car allowances should typically cover the expenses associated with maintaining and operating a vehicle, such as fuel, insurance, and necessary repairs. It should also cover a reasonable amount to compensate the employee for the ‘wear and tear’ on their vehicle resulting from business travel.
Should the Car Allowance be Standard for all Employees?
We would say that it depends. The amount of a reasonable car allowance should depend on several factors, including the employee's location, job role, and company policies.
The first is the location of the employee. If you have a field sales person in Scotland and you expect them to come to the office in the Midlands a couple of times per month, the amount for ‘wear and tear’ should be considerably higher.
Secondly, in remote areas, the cost of operating a vehicle may be higher due to factors such as higher fuel prices and car maintenance costs.
Thirdly, for field sales, you may want your employee to create a good impression of your company so you may need to pay a higher allowance in this case so that they can lease or buy a better ‘grade’ of car.
Lastly, what is your car allowance policy – check with HR. Remember that when an employee is driving their car on behalf of your business, it becomes your responsibility. ). By scrimping on the car allowance, your employee may not keep their vehicle as maintained as it should be. Should they have an accident, it potentially will become your problem (see note on the Corporate Manslaughter and Corporate Homicide Act 2007).
What is a Typical Car Allowance in 2023
The range is huge, and we see firms paying allowances from £300 to £700 to field-based sales staff.
As a business owner/line manager, based on your company car policy, you can determine the car allowance for an employee and include it in their contract.
Taking into account the average of projects worked by Aaron Wallis, we recommend that the benchmark figures should be:
- £8,400 to £13,200 for Sales Directors, Commercial Directors and Business Unit Directors of larger companies;
- £6,400 to £8,400 for Senior Sales Managers and Sales Directors of SMEs;
- £4,800 to £6,400 for Sales Managers;
- £4,200 to £4,800 for Business Development Managers;
- £3,600 to £4,200 for Field Sales Representatives.
NB The car allowance is typically paid as salary so tax and national insurance will apply at the usual rates. While making tax arrangements for both parties easier than for a company car, you must consider this when setting the car allowance rate. In addition, we suggest you provide a mileage allowance to employees in addition to the car allowance, which is reported as an expense.
We recommend a minimum of £300 per calendar month if the maximum mileage allowance is offered (currently, in 2023, this is 45p per mile for the first 10,000 miles and 25p after that).
We recommend a minimum of £350 PCM if a lower mileage allowance is offered. Remember, after tax and NI, that equates more to about £270, so the employee would be able to lease a car at, say £200 PCM allowing £70PCM to cover insurance and maintenance.
In the current ‘cost of living crisis’, if an employee has concerns about the adequacy of their car allowance, they should discuss these concerns with their employer to try to reach a satisfactory arrangement.
What is a Typical Car Allowance for Sales Directors in 2023
Directors, senior executives or board members expect some level of prestige when meeting with clients and therefore are usually paid a higher car allowance.
Again, we see a wide range offered from £600 to £1,100 PCM, with the typical amount being around £700 PCM. Allowing for tax and NI, this amount should cover the lease cost of a mid to the top of the range German marque or similar.
Date published: 28th November 2022
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by George Humphries
Senior Consultant
About the author
George Humphries
George is an experienced recruitment consultant at Aaron Wallis, specialising in recruiting top sales staff for technical and commercial positions. With a background in both FCMG and technical sales, George has first-hand experience in the sales industry, giving him great insight into identifying top performers.
If you're looking to take the next step in your career, George is a valuable source of professional advice, working daily with some of the brightest and biggest businesses throughout the UK.
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