Company Car Policy: Pros and Cons

Do some of your employees need to travel regularly as part of their day-to-day role? Perhaps their sales reps, or tech or maintenance specialists that frequently need to be on-site.

If so, you’re probably going to need to develop some sort of company car policy—and there are pros and cons for both the employee and you as an employer. Let’s take a closer look to help you decide whether or not offering company cars is right for your business.

What is a company car?

A company car is a vehicle provided by an employer for an employee’s business and, in some cases, personal use. 

In the UK, company cars are commonly offered as part of a benefits package, particularly for employees who frequently travel for work. While the employer owns or leases the vehicle, the employee can use it according to the company’s policy.  

Company cars are subject to Benefit-in-Kind (BiK) tax, which depends on factors such as the car’s list price, CO2 emissions and fuel type. Lower-emission vehicles, like electric or hybrid models, attract lower tax rates, making them a cost-effective choice for businesses and employees alike. 

The advantages of offering company cars as a business

Providing company cars to employees can offer several advantages to UK businesses, from improving operational efficiency to enhancing employee satisfaction. Below are some key benefits of implementing a company car scheme.  

Improved business efficiency and productivity  

For businesses that rely on employees travelling between sites, visiting clients or making deliveries, company cars ensure reliable transport because employees don’t have to depend on public transport or their own vehicles, reducing delays and increasing efficiency. 

What’s more, a fleet of company cars allows businesses to standardise vehicle quality, making it easier to ensure safety and reliability.  

Tax benefits and financial efficiency

British businesses can benefit from tax relief on company cars through capital allowances, allowing them to deduct a portion of the vehicle’s cost from their taxable profits. 

Additionally, businesses may reclaim VAT on leased or purchased company vehicles, depending on their level of business use, while opting for low-emission vehicles or electric cars can further reduce costs due to lower Benefit-in-Kind (BiK) tax rates and government incentives.  

Attracting and retaining talent

The most successful businesses are able to acquire and retain the best talent, and a company car is a valuable perk that can make a business more attractive to prospective employees. 

Many employees see it as a cost-saving benefit because it reduces their need to purchase or maintain a personal vehicle, but offering company cars can also help retain top talent, as employees learn to depend on the practical benefits of being provided with a company car.  

Greater control over business travel costs

When employees use their own vehicles for work, businesses often pay mileage allowances, which can be unpredictable and costly. A company car scheme gives businesses more control over travel expenses, particularly if they opt for fuel-efficient or electric vehicles.

The disadvantages of offering company cars as a business

While company cars can offer various benefits, they also come with potential drawbacks that businesses must consider before implementing a scheme.  

High costs and financial commitment

Providing company cars requires significant investment, whether through outright purchase or leasing. Businesses must cover insurance, maintenance, road tax and fuel costs, all of which can add up—particularly if you need multiple vehicles. 

What’s more, depreciation means that company-owned vehicles lose value over time, reducing their long-term financial return.

Tax and compliance complexities  

Company cars are subject to Benefit-in-Kind (BiK) tax, which varies depending on CO2 emissions, fuel type and other factors. 

Keeping track of changing tax regulations and ensuring compliance with HMRC requirements can be complex and time-consuming, while businesses must also manage employee usage policies to avoid unexpected tax liabilities.  

Administrative burden

Managing a company car scheme involves paperwork, record-keeping and fleet management responsibilities, with businesses having to handle insurance, maintenance and employee agreements, and this added administrative burden may outweigh the benefits for smaller companies.

The advantages of having a company car as an employee

A company car is a desirable workplace benefit for a lot of British employees thanks to the convenience, financial savings and professional advantages it provides. Below are some key benefits of having a company car as part of an employment package.  

Significant savings on vehicle expenses

One of the biggest advantages of a company car is the potential savings on vehicle expenses. Employees can avoid the upfront cost of purchasing a car, as well as ongoing expenses such as servicing, insurance, road tax and depreciation, while many employers also cover fuel costs for business use, reducing overall personal spending on transport.

No maintenance responsibilities

With a company car, employees don’t have to worry about maintenance and repair costs, as these are typically handled by the employer, including regular servicing, breakdown cover and insurance. This doesn’t just provide peace of mind, especially for employees who travel frequently for work, but also significantly reduces the employees’ financial outlay on vehicle expenses. 

Access to newer and better vehicles 

Employers often provide newer or well-maintained cars, meaning employees can benefit from modern and reliable vehicles with the latest safety features and technology—without having to deal with the large upfront or ongoing cost themselves.

The disadvantages of having a company car as an employee

While a company car can be a valuable benefit, there are some potential downsides that employees should consider before accepting one as part of their remuneration package.  

Benefit-in-Kind (BiK) tax liability

One of the main disadvantages of a company car is the Benefit-in-Kind (BiK) tax. 

Employees must pay tax on the car’s value, which is based on various factors that we’ve already discussed in this article. Higher-emission vehicles attract higher BiK tax rates, meaning employees could end up paying a substantial amount each year—although it’s worth noting that the increased tax liability is very unlikely to be higher than the cost of running your own vehicle for work purposes.  

Limited vehicle choice  

Unlike purchasing a personal car, employees won’t have an unlimited choice when it comes to the make or model of their company vehicle. Employers may offer a limited selection, often prioritising cost-effectiveness and fuel efficiency over personal preference, meaning employees may not get their ideal car or one that suits their lifestyle.  

Restrictions on personal use

Some employers impose restrictions on personal use into their company car policies, such as mileage limits or restrictions that prevent employees from using the car for non-business travel. Even when personal use is allowed, it may be subject to additional tax implications, reducing the overall flexibility and convenience of having a company car in the first place.  

Loss of asset ownership

Unlike buying a personal vehicle, employees never own the company car, meaning they must return it if they leave their job. For employees who prefer long-term ownership, this can be a drawback.

If you’re a business that’s considering introducing a company car policy, but you’re unsure if it’s right for you, why not get in touch with the team here at Warr & Co? We have years of experience in helping SMEs and large corporations navigate the complexities of salary sacrifice schemes and Benefit-in-Kind tax obligations, meaning we’re well placed to offer impartial, expert advice on whether the advantages outweigh the disadvantages.