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Company Car

Company Car or Cash Allowance?

+44 (0)1625 500 511

Company Car or Cash Allowance?

For eligible employees, most organisations offer a choice of company car or cash allowance.  But which one is best?  The changing economy, fiscal environment and global influences have changed the dynamics of the decision over time.

The Company Car

Company cars are provided by employers to employees.  They are usually given to drivers who need a vehicle for the purposes of the job, or as a benefit due to their status within the company.  Vehicles are usually provided with a comprehensive range of services such as servicing and vehicle maintenance which makes the company car an attractive hassle free benefit.

In recent years a number of employers have tightened the policies for job need drivers.  Generally choice has been restricted to allow the employer to secure additional discounts from manufacturers and also to help reallocate vehicles when employees leave.  There has been an increased focus on reducing CO2both from a cost and perceived environmental perspective.  Some organisations are also choosing to raise the mileage threshold before an employee is eligible for a job need vehicle.

Status or perk vehicles have also seen policy restrictions generally increase.  Vehicles are being kept for longer periods with 4 years generally being the norm.  Other restrictions around CO2 and body style are commonplace as employers seek to control the costs of this population of drivers.

The individual company car scheme policy has a significant bearing on the cash or car choice.  Due to the perceived increased risk to an organisation some organisations have chosen not to allow drivers to select the cash alternative.

The Cash Allowance

Cash allowances are a flexible alternative to the company car.   In return for cash allowance employees are required to provide their own vehicle for use on company business.  Generally employers insist on minimum requirements so that the vehicle is fit for purpose and road legal.  Requirements include business class insurance and proof that the vehicle has road fund licence and a valid MOT certificate where the vehicle is over three years old.

The Financial Equation

There are a number of financial elements to take into account when choosing between company cars or cash allowance.

Company cars attract a taxable benefit based on the list price of the vehicle (P11D cost), CO2 emissions and fuel type.  A further taxable benefit is levied where the employee receives free fuel for private use.

Employees in receipt of a cash allowance pay tax and national insurance at their marginal rate, on the gross cash amount payable.

Company Car


Cash Allowance

Company car tax



Net Cash Allowance


Trade Up / Down

Cost / Income


Mileage Tax Relief


Private Fuel**








Vehicle running costs



What Is Best?

There is no set answer as to whether a company car or cash allowance should be selected.  There are a number of factors in addition to financial considerations to consider.  Company cars offer a fixed price, hassle and risk free motoring.  Cash allowances offer a flexible alternative which can be attractive especially where policy decisions restrict choice. 

If you would like some impartial advice on the efficient operation of your fleet please email us on

Additional Information

HM Revenue and Customs:


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