COMPANY CAR FUNDING
Alternative ways for a driver to fund their company car
The most common method of funding a company car is through the payment of BENEFIT-IN-KIND (BiK) TAXATION. HMRC considers a company car available for private use as taxable income. The government sets BiK rates based on the car's CO2 emissions. Payment is generally deducted from the employee's salary, and the employer covers costs such as servicing, maintenance, insurance, and breakdown cover.
Visit our BiK page for further information and to calculate the value of a company car for tax purposes.
There are other options for employees to fund a company car:
- Car allowance
- Salary sacrifice
- Personal Contract Hire (PCH)
Car allowance
A car allowance is a fixed monthly payment offered by some employers as an alternative to a company car. This option can be attractive as it eliminates uncertainty around future changes in BiK rates and may offer access to a wider range of vehicles.
Employees who choose this option will usually be paid a mileage allowance to cover fuel costs for business trips, along with other costs like servicing, business-use insurance, and contract hire rates.
HMRC sets Approved Mileage Allowance Payments (AMAPs) to reimburse employees for the cost of using a private car for business purposes. Latest rates can be found here.
Employees opting for a car allowance are responsible for the maintenance, insurance, and servicing of their vehicle.
Salary sacrifice
Salary sacrifice is a car finance option where employees give up a portion of their salary in exchange for a car. The employer usually covers the cost of supplying the car, and the employee pays Benefit-in-Kind tax based on the car's CO2 emissions.
Personal Contract Hire (PCH)
Personal Contract Hire (PCH) is a type of vehicle leasing agreement that allows an individual to rent a car for a fixed period of time – typically between 2 to 4 years – in exchange for a monthly rental fee. It’s essentially a long-term rental where you don’t own the car at the end of the contract.
PCH agreements usually include a mileage limit, which is the maximum number of miles you can drive the car each year without incurring additional charges. If you exceed this limit, you may have to pay excess mileage fees at the end of the contract.
Depending on the agreement, maintenance and servicing might be included in the monthly payments. However, insurance is typically not included, so you will need to arrange your own car insurance.
The car must be returned in good condition, considering normal wear and tear. If the car has excessive wear or damage, you may be charged additional fees. Additionally, if the employee changes jobs, they must either maintain the monthly payments for the Personal Contract Hire car or cover early termination fees.
