Company car or cash? It's a perplexing offer open to most company car users. Even if you have to drive for your job and will need to source a new car privately there are benefits to opting out of a company car scheme.
Buy a car outright and you'll be putting your money into an asset that you'll be able to sell on. You'll also be able to choose from a wider range of cars than your employer might offer. This is particularly alluring if, say, your employer vetoes convertibles or anything that's not a Ford. It also gives you the freedom to choose between diesel or petrol models, whereas your employer might push you towards diesel.
Various finance packages are available, and there's also the option of a personal contract hire (leasing) scheme. If you're thinking of opting out of - or into - a company car this guide can help you make an informed decision.
How much money will you get?
The cash you'll be offered in lieu of a company car will be roughly what your employer would have paid to lease the car, possibly with a few caveats depending on their calculation method and on each individual employee. If you've forgotten how much is on the table, ask your fleet manager, HR department or payroll staff.
The Volvo V40 is available with efficient engines that make it a fine company car or private buy.
The first thing to bear in mind is that the money will be added to your annual salary, so it too will be subject to your rate of personal income tax. That means you'll have rather less to spend on a car than the value of the company car lease you would have enjoyed. For instance, a 40% taxpayer with a car allowance of £5500 could end up with just £3300 after tax. However, you'll no longer have to pay company car tax, and if you're using your own car for work, you can charge your employer a mileage fee to cover both fuel and the cost of maintenance.
Financing your car
There are plenty of financial packages out there. The simplest options are a bank loan, or hire purchase (HP). Once you’ve paid back the agreed HP monthly instalments, the car is yours to keep.
If you’re not bothered about owning the car, you can consider personal contract hire (PCH, or personal leasing), or a personal contract purchase (PCP). Both offer lower repayments than a bank loan.
With personal contract hire, you simply pay a deposit plus fixed monthly amounts and hand the car back at the end of the term.
A PCP is similar, but at the end of the contract you’ll have the option to buy the car for a lump sum based on a residual value for the car that you will have agreed in advance. This value will be influenced by your predicted mileage, which will also affect your monthly payments. You’ll want to get your mileage prediction right at the start.
Finding the right PCP or PCH can involve a lot of legwork because there are so many variables: the size of the deposit, the length of the contract, whether insurance is included, or if you need to arrange it yourself.
On top of this, working out which cars are going to be more or less expensive to lease isn't easy. A lot can depend on the popularity of the exact model, and its predicted resale value. Different leasing companies offer different rates to get your custom, too.
The Vauxhall Astra is a popular company car; private buyers can get a good discount on the list price.
The real cost of motoring
One of the perks of a PCP or PCH is that you can choose to pay a premium to have all servicing, maintenance and roadside assistance taken care of, so your personal motoring can be as worry-free as running a company car.
You may be able to include a service package with an HP deal, but if you're buying with a bank loan you'll need to do some additional maths in order to know how far your money will go. You’ll need to make sure you’ve budgeted not just for the cost of the car but for insurance, road tax, servicing, roadside assistance, MoT tests and repairs.
Many employees stick with a company car because the employer's lease company takes care of all the housekeeping. For some people, this lack of hassle can justify the company car tax on its own.
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