While you’ve almost certainly heard of company car allowance, if it’s never been offered to you before, you may not be familiar with how it actually works. There are all sorts of benefits and perks your employer may offer in order to entice you to work there, or make you feel valued, and a company car allowance is certainly an attractive perk!

Years ago, if you worked for a big organisation, the company would often have fleet cars that employees could use for business purposes. And while this ‘company car’ scheme does still exist, company car allowance is becoming increasingly popular. The latter involves financing a vehicle rather than having use of one owned by the business. 

To help you understand more about company car allowance, such as its advantages and limitations, we’ve explored this topic in more detail below:

What is a Company Car Allowance?

If you’re offered company car allowance, this simply means that your employer will put money towards your vehicle, as long as it’s used for business purposes. Normally, this money will be added to your monthly salary, and will be clearly set apart so that you can see the figures on your wage slip. 

There are a few different ways the business can contribute towards the cost of your vehicle. For example, your employer could:

  • Help towards buying or leasing a vehicle
  • Contribute towards a vehicle already owned or leased by the employee
  • Retroactively apply the allowance to offset the upfront cost of the employee purchasing a new vehicle 

When compared with a company car, a company car allowance tends to offer much more flexibility. Whether or not it’s the better option financially will vary though. How much money that is put towards your car allowance will depend on factors such as your geographical distance from your workplace, the vehicle you’re driving, as well as the allowance policy of your employer.

company car allowance

Average Car Allowance in the UK

As mentioned above, how much you’d receive in terms of car allowance will be determined by your employer. There are no universal guidelines as to how much you should be given. It can range from a few hundred pounds a month to around £1,000 a month.

The amount offered to you should be clearly detailed in the paperwork outlining your benefits package. And if you’re interested to learn more about how this figure was decided upon, you should be able to request a breakdown of the calculations from your employer.

It’s also worth noting that you can try and negotiate for a larger allowance. With most benefits, as well as your salary, some negotiation is often expected. Take a look at the breakdown of your car allowance, and see if you think the calculations are reasonable. Perhaps you drive more miles than estimated, and can therefore ask for a higher fuel contribution.

How Does a Company Car Allowance Work?

As an employee, your car allowance would normally be paid alongside your monthly salary, though it’s a good idea to check with your employer that this will be the case. Once you’ve received the money, although it will have been calculated based on things like vehicle finance payments and fuel, in most cases, you can decide how it’s spent.

For example, you could use the allowance to purchase a new or used car, lease a vehicle, or simply put the money towards the running costs of your current vehicle. Just check your car allowance contract to make sure there are no restrictions on how you spend the allowance.

If you do decide to use the money to take out a vehicle loan, it’s important to remember that it will be your name on the contract, not your employer. So you’re responsible for the loan repayments, even if you’re no longer getting company car allowance. You’ll also be responsible for all the other running expenses of the vehicle, such as maintenance and repairs, MOT costs, as well as car insurance.

Benefits of Company Car Allowance

There are a number of advantages to a company car allowance, for both the business and the employee. In terms of the former, one of the main benefits of car allowance is that you don’t need to maintain a fleet of cars. You can also determine how you want the contract to be set out, whether that’s how often you pay out the allowance, or if you want to set any restrictions on how the funds are spent. Another advantage of offering a company car allowance is that it can be a great incentive, in terms of attracting, as well as retaining, staff.

The benefits of company car allowance for employees mostly speak for themselves! You can put money towards financing a car, or to pay for running costs, and as the vehicle will be in your name, you’ll be able to keep the car even if you leave the business. This wouldn’t be the case if you were given a company car to drive. Essentially, a company car allowance is money on top of your pay cheque!

company car

Limitations of Company Car Allowance

There are a few limitations when it comes to company car allowance. For instance, as an employee, you may be restricted on how you’re able to distribute the funds. It’s therefore sensible to check with your employer if any restrictions apply, and potentially see if you’re able to renegotiate the terms of the contract. 

For businesses, although a company car allowance can be a much more convenient option than maintaining a company fleet, the costs of offering an allowance to your employees can add up. That’s why this is a perk that is typically only offered to staff with seniority, and often in higher positions within the organisation.

Am I Entitled to Mileage With a Company Car Allowance?

While the cost of fuel may be included in your company car allowance, some businesses will pay for mileage on top of the allowance. It’s more common that you’d just get one or the other though, rather than both!

Normally, you’d be able to claim back your mileage on a monthly or quarterly basis. HMRC have an approved amount of money per mile that can be claimed, though you may be offered more than this. For the first 10,000 miles, cars and vans should be entitled to 45p per mile, and then 25p per mile for anything above 10,000 miles. These figures are reassessed periodically, so may be subject to change.