Working from home: Is it the end for company cars?

Leicester drivers are reportedly some of the angriest in the UK

Company cars have traditionally been given to mid and senior management level employees as a perk of the job; with the added benefit that they can use them for personal as well as business use. But, with more and more people working from home since the pandemic, at least for some of the week, has the appeal of company cars reached a natural conclusion?

Many company cars are used by sales representatives who travel long distances around the country. But now, a lot of these meetings are being conducted on Zoom or Google Meet, making the need for a company car redundant.

Careful consideration should also be given as to whether it is tax efficient to provide a company car or whether there is now a more suitable alternative. Generally, company directors are better off holding the car personally unless it is a low emission or electric car. 

Pros and cons of company cars

For an employee, having a company car may seem like a fantastic benefit – you don’t need to pay for servicing, insurance or maintenance, you get a new car approximately every three to five years, and you aren’t tied into a personal financial contract, such as hire purchase. 

But, you will have to pay income tax on the perceived benefit, the car belongs to your employer so you are left without a vehicle if you leave your job, and you don’t get to choose the car you are given.

For employers, advertising or branding can be added to the cars as an extra marketing tool, using cars with low CO2 emissions can reduce a company’s carbon footprint, and can allow you to claim capital allowances that reduce taxable profits. However, you are responsible for the upkeep of the cars which can take both time and money, and you have to pay Class 1A National Insurance Contributions at 13.8% on the benefit. 

Tax and financial implications

If an employer allows an employee to use a car that the business has bought or leased, and the employee uses it privately, there will be a benefit in kind charge. Private use generally includes commuting from home to a permanent place of work. The benefit is calculated using the list price of the car plus any accessories, the vehicle’s CO2 emissions and the type of fuel that the car uses.

If the business also pays for the private fuel for the individual a further benefit in kind charge will arise. The fuel benefit in kind charge can be quite expensive. An alternative is for the employee to pay for their own fuel. They can then make a claim for the business mileage using the HMRC company car rates which change each quarter.

Company car allowances and logbook loans

If your company chooses not to provide a company car, there are still several financial benefits that can be procured from owning your own vehicle. It may be that instead of a physical car, you may get a company car allowance.

A company car allowance is a cash allowance added to your annual salary, allowing you to buy or lease a vehicle privately. A company car allowance is becoming increasingly popular with employers as an alternative to a company car as it offers the employee the perks of a new vehicle without the employer having the hassle of managing a fleet of vehicles

Alternatively, you may choose to take out a logbook loan on an existing vehicle. Logbook loans allow you to withdraw cash from your car via a same-day cash loan. Using your car as financial security allows you to get a better loan interest rate compared to unsecured forms of credit. explains that, “The trade value of your car will determine the maximum value of the loan, therefore the more your car is worth, the more you can borrow against it”.

A new logbook loan lets you retain full personal use of your vehicle for the duration of the loan and is secured against your car using a Hire Purchase Agreement (HPA), regulated by the Consumer Credit Act.

Alternative transport options

Most employers will have the facility to provide mileage allowance claims if you use your own vehicle for business use, often at a rate that is above the fuel cost at the time.

Other benefits may include the Cycle to Work scheme, which is gaining in popularity as more people become aware of their carbon footprint and want to reduce pollutants. The idea is that employees spend tax-free cash on bikes and other cycling equipment which allows them to make a saving of up to 42 per cent.

Car sharing was also becoming more widely-used before the pandemic, allowing employees to ride to work together so only one person is driving in each day. However, with split shifts and irregular working patterns now much more prevalent, as well as the requirements of social distancing, the opportunity to share the commute has decreased.

Final Thoughts

It may well be that company cars are no longer seen as efficient and cost-effective benefits to employers, with the added tax and financial burdens they present.

The status symbol they provided in the 1980s and 1990s is no longer as great, with most households now owning at least one car anyway. And, the arrival and acceptance of video-calling technology such as Zoom and Microsoft Teams has lessened the need for travelling, with many meetings now being able to take place at the kitchen table – and you don’t need a car for that.