Company car guide

  • What Car? company car guide
  • Company car tax explained
  • Best company cars named
Words ByJim Holder

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Are you getting the best deal from your company car? A new car without any outlay, or the need to pay for insurance or maintenance might sound like a dream come true for many hard-pressed motorists – but is it actually costing you more than you save?

It sounds ideal, but you need to choose a company car with your eyes open. If your job demands a lot of time on the road, chances are you'll automatically be supplied with the company's standard model, but you may also be offered a wider choice.

Some employers will give you the option to 'upgrade yourself' by letting you make a cash contribution to the car, or you could even get a rebate if you take a cheaper car.

Even if you're a senior executive, the list of new cars available may incorporate restrictions on CO2 or safety ratings (to help keep down leasing costs).

Company car tax For most company car users, the biggest downside is the tax you'll have to pay on the 'benefit' of having a car. As soon as you use the car for a personal reason – which includes driving home from work – Her Majesty’s Revenue and Customs (HMRC) sees it as a taxable payment or benefit, in kind.

The Benefit-in-Kind (BIK) value that HMRC attaches to your car is a percentage of its list price, based on how much CO2 it puts out. This 'P11D value' is made up of the car's list price plus VAT, delivery and any options costing more than Β£100. The BIK amount is added to your salary and then taxed at your usual income tax rate.

You can simplify matters by using our online company car tax calculator.

Fuel – to pay or not to pay? Your employer might offer to pay for all your fuel, but do your sums before you accept, because this counts as another benefit, which means you'll have to pay tax on it.

If you don’t do that many miles, it may be cheaper for you to pay for your own fuel. The next question is do you choose a diesel or petrol model as for your company car.

Make sure you study our What Car? True MPG figures as part of your research - these give the best indication as to what a car will achieve in the real world, as opposed to laboratory test conditions.

Opting out
It’s not just the fuel you can opt out of. Some opt out of the company car altogether, and pocket the cash alternative. It’s a choice open to virtually all company car users. The main exceptions are those who do a lot of work miles. In this case, the employer will probably want to make the most of a lease company’s maintenance package.

Companies prefer to lease rather than buy cars so that they don’t have to deal with depreciation, maintenance, or selling the car on in a few years. Many firms stick to the same make of car, so their leasing agent can broker the best possible deals from the manufacturer.

Company car or cash alternative? A cash alternative to your car can sound attractive. But an allowance of, for instance, Β£5500 might not go as far as you think. For one thing, it’ll be taxed, so a 40% taxpayer will get just Β£3300 to spend. From that you’ll have to pay your own insurance, maintenance and road tax.

Further information All new car reviews are available in the reviews section on

A list of the best executive company cars is here.