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If you’re an employee being offered a car allowance, you may be wondering ‘what’s involved?’ Well this guide explains everything you need to know, including your responsibilities, the benefits and consideration points, as well as up-to-date information on how a car allowance will impact you financially.
A car allowance is an amount of money added by an employer to an employee’s salary or wages every month. The amount given is discretionary, however is usually based on the average cost of leasing a vehicle plus an additional amount to help cover some on-the-road costs such as servicing, maintenance, wear-and-tear, repairs, MOT and insurance.
More and more businesses are now offering employees the choice between a car allowance and a company car, whilst many others have moved to only offering car allowances, either with or without provision of a fuel allowance.
Employees usually have a fair amount of freedom in how they spend their allowance, however nowadays businesses commonly impose at least some restrictions regarding the car’s age, safety, style and fuel type. With an allowance, employees are free to choose between buying a car, leasing a car or else using the allowance to help fund their current vehicle.
In addition to a car allowance, some employers also provide a fuel (or mileage) allowance which pays for some or all of their fuel, to find out more, read our employee guide to fuel allowance.
Here are some of the great employee benefits of receiving a company car allowance:
Administration
With a car allowance, the employee is responsible for nearly all vehicle admin, including organising, paying for and keeping-up to-date the various aspects of having a car: the MOT, breakdown cover, servicing, maintenance, repairs etc. If the car is leased however (depending on who you lease with), the majority of this administration is usually taken care of by the leasing company.
Logbook
Many employees are offered a fuel allowance alongside their car allowance, in this case you must keep a detailed, accurate logbook of all vehicle journeys (stating the date, start and end locations, journey purpose and start and end odometer readings), and present these to your employer so they can reimburse you. Many apps are now available to help make this task easier.
If, however you are not given a fuel allowance, you don’t need to keep a mileage record, (albeit this is an uncommon situation as most employers offering a car allowance tend to also offer a fuel allowance).
‘Grey Fleet’ Policy Compliance
Importantly, regardless of whether you use the allowance to buy, lease or else to fund your current vehicle, the car you drive will be considered part of your employers’ ‘grey fleet'. A grey fleet vehicle is a vehicle owned or leased by the employee and used to any degree for work related journeys.
Under the Health and Safety at Work Act 1974, employers have a duty of care to ensure, so far as is reasonably practicable, the health, safety and welfare of employees when at work, and this includes when employees are driving for work in their own vehicle (as the vehicle is considered to be a ‘designated workplace’).
Some (but not all) employers have a company car policy that reflects this Act and you may be required to read, sign and follow any requirements or restrictions your employer places on the vehicle and/or how it is used.
Company car policies can include restrictions on who can drive the vehicle, who can travel in it, what it can be used for, it’s age, body type, engine type and CO2 emissions etc. As part of their duty of care, employers can require that any current personal vehicle you may use for work (that the car allowance helps to fund) complies with these rules.
As an employee, before you accept a car allowance, make sure you consider the following:
Information is provided as a guide only. Select Car Leasing cannot be held responsible for any personal or business decisions made as a result of information provided in the guides. As with all aspects of taxation, it is the responsibility of individuals and businesses to understand the rules and regulations and act accordingly. As personal and business circumstances can vary, it is also advised that you take professional accounting advice before making a final decision.
If you'd like to speak with our friendly team about business vehicle leasing, simply call 0118 920 5130 or email us at: enquiries@selectcarleasing.co.uk
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If you’re an employee being offered a car allowance, you may be wondering ‘what’s involved?’ Well this guide explains everything you need to know, including your responsibilities, the benefits and consideration points, as well as up-to-date information on how a car allowance will impact you financially.
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