Is providing company cars to employees right for your business?
Despite the increasingly complicated tax system both businesses and staff face, the popularity of businesses providing company cars to employees remains very high. Around half of all the new cars sold in the UK every year are sold to companies for use as company vehicles.
For many years, offering usage of a company car to employees has been a significant non-cash benefit. Company cars increase personal mobility, make it easy for staff to access your workplace and offer serious value to employees.
Despite this, offering a company car isn’t always a good thing. From the cost of new cars to the taxes your employees face for using a company vehicle, there are several downsides associated with providing a company car to employees.
We spoke to Warrantywise, a leading provider of extended car warranties, to find out the pros and cons of providing company cars to your employees.
Providing a car is a valuable benefit for employees
Being able to use a company car is a valuable benefit for employees, especially those with children. Access to a second car means that employees with families have more flexibility with their personal transportation and can easily reach the workplace.
A company car is also a valuable benefit for staff members that don’t have their own vehicles. Providing company cars can mean your employees no longer rely on public transportation, which can often be late or unreliable.
Company cars can be used in a salary sacrifice scheme
Providing a company car to an employee can be part of a salary sacrifice scheme – a compensation arrangement between your company and its employees that reduces your NIC obligations and limits your employees’ income tax payments.
Salary sacrifice arrangements are perfectly legal, although they can often result in additional expenses for your employees. A company car, for example, is subject to taxes that are unrelated to income tax, making it not always an economical choice.
Company cars make transportation a non-issue for staff
If your company’s office is located in an out-of-the-way location that’s far away from public transportation, providing company cars to employees can make it easier for your staff to travel to and from your office.
Although this is less important in a dense city such as London, being able to access a second car can be a major benefit for companies located in less populated areas, as it allows families to split their morning journey into two separate vehicles.
Employee can face extra taxes for driving a company car
Providing company cars for your employees has numerous benefits, from making it easier to get to and from work to reducing their income tax obligations. It also has a range of downsides, one of the biggest of which is company car taxes.
Employees that use company cars need to pay taxes based on the total value of the car and its emissions. These taxes can make driving a company car uneconomical if most of your staff members already have their own vehicles.
Company cars are often an unnecessary extra expense
Although most company cars are inexpensive – in 2011, the most popular company cars were the Vauxhall Astra and Ford Focus – the cost of buying multiple cars for a large workforce can quickly add up.
If your company is located close to public transportation or most of its employees already have their own vehicles, investing in company cars could be an additional expense that doesn’t provide as much value to your company as expected.
Cars need to be maintained and eventually replaced
It’s easy to think of company cars as a one-off expense, but the reality is that cars – particularly company cars that are driven frequently throughout the year – need to be repaired, serviced and maintained.
Over time, the cost of insuring an maintaining a fleet of company cars can be quite significant. It’s also important to keep in mind that company cars eventually need to be replaced – an additional expense for your business.
Should your company provide cars to its employees?
In certain situations, company cars can offer serious benefits for your employees. If your company’s office is quite remote, providing cars can help your key members of staff get to work on time without depending on public transportation.
The perks of having a company car can also be a source of motivation for employees, showing them that their employer truly cares about them and values the important role they fill within the business.
The value of a company car system depends on your company’s circumstances. If you want to provide a great benefit to employees and don’t mind the cost of a car fleet, investing in company cars can be a great idea for your business.