The case for cash v company cars

As companies increasingly offer employees a choice between a company car or hard cash, Skoda has produced guidelines to assist confused business executives in finding the best solution for their pockets.

Martin Burke, Head of Skoda Business Sales, comments: “I am often asked by people faced by company car drivers the benefits of both the company car and the cash alternative.

“There is no right or wrong answer to this dilemma; each case should be considered on its own merits. However, we have pooled our knowledge and produced the following guidelines for each individual to consider and come to the conclusion that best suits their situation.”

The Case for a Company Car

Let’s start with the obvious. For those who don’t have money to burn, a company car is an excellent proposition. Despite paying tax, you are relieved of the worry of unexpected bills, and the expense of regular road tax, insurance, service and MOT payments not to mention the cost of ongoing maintenance.

Cash, at first glance, can often be a more enticing offer – however, the cash allowance is taxable, so careful thought needs to be given as to the car you would buy with the allocated allowance. Bear in mind that many companies stipulate the type of car you must choose, and if you cannot afford a vehicle to the standard of the equivalent company car, you would be foolish to resist – after all, in business many first impressions are made by our cars.

Consideration should also be given to the industry in which you work. In a field such as sales where company cars are the norm, opting for a cash allowance could leave you in a sticky situation when changing companies. You can get stuck with a car if the new business has an enforced company car policy – a potential difficulty if you have entered into a personal contract hire arrangement.

Finally, for the increasing numbers of us commuting significant distances to work, the financial benefits of a company car will far outweigh any mileage allowance.

The case for cash

The lifestyle benefits for choosing a cash allowance and therefore your own car are multiple; not only can you choose the type of vehicle that you want to drive and that best suits your lifestyle, exchange it for something new as and when you wish but, above all, the car is yours – so you can alter or modify it as you wish.

While certain models may not appear affordable within the lump sum, often the amount you will save in company car tax is equal to many monthly payments. Owning your own car also means that once the balance has been paid, the vehicle will always have residual value.

For those employees from a two-or-more-car family, opting for the cash sum means you can swap cars with your partner and still claim mileage from the company, a luxury not permitted with a fleet vehicle. If your future at your current job is uncertain, bear in mind that if redundancies occur and you are in possession of a business vehicle, you stand to lose not only your job but also your car.

Finally, for those motoring connoisseurs among us, you may be better suited to taking the cash option as choice of company cars is often restricted, leaving you in receipt of a car you might dislike.

A case of tax

Practical as all the above points are, often the company car v cash decision often falls down to one factor: tax.

Less than half of company car drivers know how much tax they pay on their vehicles, and more often than not a driver will choose their next vehicle based on looks and performance, not realising it could cost them nearly double in tax bills. Opting for a vehicle such as the Skoda Fabia, with emissions starting from just 124g/km can save company car drivers a tidy sum.

Websites such as www.hmrc.gov.uk/calcs/cars can help you to work out how much tax you will be paying. Compare this figure to the amount of extra cash your company would provide if you opted out. Your net amount after tax, plus the savings you will make by not paying Benefit in Kind tax should be considerably higher for you to benefit from rejecting the offer of a company car.

Martin Burke concludes: “When comparing company cars to a cash lump sum, the vast majority of people find that they are better off choosing the car. However, it is a personal choice. We hope that by providing drivers with this information, they can make the best decision to suit both their business and personal needs equally.”

Skoda now has a total fleet share of 1.27% after securing a number of high profile clients, including IKEA, Marie Curie, Mencap and Caterham Cars. It is aiming is to grow its share of the business sales market by offering fleet managers and company car drivers alike its legendary ‘extra bit of car’ for their money.