Company car schemes often offer employees the chance to drive a new vehicle with reduced personal cost, but the decision can be tricky.

From tax implications to fuel efficiency, here are some key factors to consider to help you make an informed choice.

Understanding Company Car Taxation

When selecting a company car, tax implications are one of the most important considerations.

In the UK, the government levies a Benefit-in-Kind (BiK) tax on employees who have access to a company car for personal use. The BiK tax is determined by several factors:

• Car’s CO2 emissions: Lower emission vehicles attract a lower BiK rate.
• Car's list price (P11D value): This includes the price of the car and any additional features.
• Fuel type: Diesel cars usually have higher BiK tax rates unless they meet the RDE2 emissions standard.
• BiK tax rate: This can change annually and depends on the car’s emissions and the government’s tax bands.

Key Tip: Electric and hybrid cars are often the most tax-efficient choices due to their low CO2 emissions and lower BiK rates.

Electric, Hybrid, or Traditional Fuel?

The type of fuel your company car uses will affect not only your tax bill but also running costs, convenience, and long-term savings.

• Electric Vehicles (EVs): These vehicles offer low running costs and significantly lower BiK rates. However, the availability of charging points and the vehicle’s range may be concerns for some.
• Plug-in Hybrid Electric Vehicles (PHEVs): These offer a compromise, with the ability to run on electric power for short distances and petrol or diesel for longer journeys. They are tax-efficient but only if you maximise the use of the electric range.
• Diesel and Petrol: Diesel cars were once the go-to for long-distance drivers due to their fuel efficiency, but with higher BiK rates and environmental concerns, they are now less attractive. Petrol cars generally suit drivers with lower mileage, offering better performance for short trips but higher running costs.

Key Tip: Assess your driving patterns. If you drive long distances regularly, a PHEV or efficient petrol/diesel car may be better. For shorter commutes or city driving, consider an EV.

Running Costs: Insurance, Maintenance, and Fuel

Company cars usually come with insurance and maintenance packages included, but understanding the running costs is still essential.

• Fuel efficiency: Compare miles per gallon (MPG) or miles per kilowatt-hour (for EVs) to estimate fuel or electricity costs.
• Servicing and repairs: Hybrid and electric cars may have lower maintenance costs, while diesel engines are more expensive to maintain.
• Insurance: Typically included in company car schemes, but the type of car may affect your insurance costs if you contribute to it personally.

Key Tip: Even if the employer covers insurance and maintenance, choosing a fuel-efficient car can lead to savings in personal fuel contributions.

Comfort and Suitability

While financial factors are crucial, choosing a car that is practical for your lifestyle and needs is equally important. Think about:

• Size: If you frequently carry passengers or equipment, a larger car may be essential.
• Technology and features: Modern cars come with advanced safety features and infotainment systems. Consider whether you need options like lane-assist, adaptive cruise control, or premium interiors.
• Driving experience: Test driving a car is critical. Ensure it feels comfortable, especially if you drive long distances.

Key Tip: Don’t choose a car solely based on financial benefits. Ensure it meets your personal and work-related needs.

Residual Value

If your company offers you the option to purchase the car at the end of the lease, it's wise to consider the ‘residual value’ (the expected value of the car at the end of the leasing period). Cars that hold their value well will cost less to buy after the lease, and they may also come with lower leasing rates.

Brands like BMW, Audi, and Mercedes tend to hold their value, while some hybrid and electric vehicles have fluctuating residual values depending on market demand and technological advancements.

Key Tip: Check the projected residual values to avoid surprises if you're planning to buy the car later.

Environmental Considerations

With stricter emissions regulations and the UK's 2035 ban on the sale of new petrol and diesel cars approaching, choosing an eco-friendly car may also future-proof your choice.

Electric vehicles (EVs) and hybrids are ideal for reducing your carbon footprint, and many employers are moving towards greener company car fleets to align with sustainability goals.

Key Tip: An EV or hybrid could future-proof your choice as the UK moves toward electric-only vehicles.

Financial Contributions from Your Employer

Employers sometimes offer schemes where they contribute towards the cost of your company car, or you may be able to opt for a salary sacrifice scheme.

In a salary sacrifice arrangement, you give up part of your pre-tax salary in exchange for leasing a car. This can reduce your overall taxable income, potentially leading to tax savings, but it also lowers your take-home pay.

Key Tip: Understand how much your employer will contribute and the potential impact of salary sacrifice on your finances.

Conclusion

Choosing the right company car in the UK depends on balancing financial, environmental, and personal considerations.

Key factors include understanding the tax implications, selecting the right fuel type based on your driving habits, and ensuring the car meets your lifestyle needs.

With the growing focus on sustainability, opting for a hybrid or electric vehicle is a smart choice, both financially and environmentally.

By considering all these elements carefully, you can make an informed decision that not only suits your job but also complements your personal life.

TYSONCOOPER are personal and fleet management specialists and can support you with up-to-date market knowledge and analysis.

If you want some help and advice, get in touch and we can go through the options as they relate to your personal circumstances.