For a long time now, there have been employees that have chosen to opt out of their companies “company car scheme” and for sure, in certain cases, well it made good sense to do that.
But the question is, does it still make sense?
Drivers that only use a car as a perk and don’t travel very far, were finding that the BIK tax they paid, added to the cost of free fuel allowance, just didn’t stack up financially as they were not really getting a major benefit from the use of their company car, yet they were paying the same amount as a colleague who’s use pattern was completely different and for who the company car, even taking into consideration the BIK tax, was still very much the deal of the century.
For sure, there is a temptation to take a monthly cash alternative from your employers, in lieu of your company car and use your own car, particularly in difficult times where every penny you can get hold of is important.
Truth is however, what ever extra your company pay you in extra wages are going to have tax deducted before you get your hands on it, so it’s effectively worth a lot less. From here on in, you figure out what its going to cost you to run something similar to the car your company previously provided you and you very soon realise that this just isn’t possible, particularly in these times, where is not unusual for a car to loose up to 50% or 60% of its value in the first 12 months and on a £20,000 car, than could be a £10,000 loss.
The most common scenario is for users to take the cash alternative, then buy a used car, with all the reliability issues and repair costs that might come along with that. As the cars owner, you will not only have to pay the cost of annual excise duty, but insurance also and if you intend using the car for anything at all involved with your work, you have to insure for that risk, at an extra cost. You will also have to fund the purchase of your non-company car and of course accept that it’s going to depreciate as well.
For most users, unless you literally cover no miles or simply take the bus, the company car is still a huge benefit and even after paying your BIK tax amount, it does not come close to the real cost of running an equivalent car, had you had to do it yourself, so if a car is important to you, the “company car” is still a major benefit as it allows you to have access to a new fully maintained vehicle, that in most cases, you couldn’t even dream of having, if you had to fund it yourself.
New green bandings mean that being clever and choosing the right car, you can minimise the amount you pay in BIK tax anyway, yet still get a car that you will like and one that’s going to very likely be kinder on the environment than an old car you might choose if you had to fund it yourself, so frankly, it’s a win win.
Employees who opt out, kid themselves that they have a good deal, as they never compare like for like. For sure, running a car you already have, or buying a used car, might stack up on the face of it, but if you start to actually work out the true costs of running the car your company give you, you will very soon realise that even paying the BIK tax, the company car is just such good value.
From an employer’s point of view, it amazes me in these times of a strictly regulated business environment that any employer would give any employee that needs to use his car during his work, the choice of opting out of the scheme. New corporate manslaughter laws, could see companies being charged if an employee is involved in a serious accident involving a fatality and as a duty of care also exists, the company would need to be absolutely certain that the car the employee was driving on your business (even if it were his own personal car) was 100% safe and fully maintained and if that was found not to be the case, and an accident happened, the company could have the most severe actions taken against it.
Again, from an employer’s point of view, allowing your employee to use their own car on business, maybe does not always project the correct image for your company and that’s also a pretty important issue. Another issue, often overlooked is that history shows that many times when an employee has opted out, there comes a point when his next door neighbour turns up with his new company car and your employee starts to compare himself unfavourably against the neighbour, who probably does a similar job, for similar money, but gets a company car and all of a sudden, you’ve got an unhappy employee on your hands, pushing for more money, or the re-introduction of his company car (completely ignoring the extra money you paid them for the opt-out).
The company car is still a pretty good bargain, it gives us the user an opportunity to drive a safe modern car that’s likely to start in the morning and is going to be pretty reliable and means we have the confidence to go off and visit our aged Aunt in Cornwall at the drop of a hat, without hardly a worry that we will break down on the way and lets face it, we all like nice things and nice things cost money, but when you at the deal we are offered in our company cars, there isn’t much we buy that offers that kind of value.
