With your permission, we’d also like to set optional Google analytics cookies to help us improve our service, however, we won’t set optional cookies unless you enable them. As a result, the vehicle doesn’t belong to the company and the responsibility of maintenance falls to the employee. A mileage reimbursement is when a company pays you back for your car costs after you’ve filed an expense report. Every year the question of how much tax an employee will have to pay towards their annual BiK tax is calculated using three key factors. It’s a plan where the reimbursement or allowance follows these requirements: The advantage of a car allowance is that it’s very simple to implement and maintain. A company car (not allowance) tax generally incurs much higher tax costs than an allowance. The benefits package in the UK is comprehensive and includes everything from healthcare to wellness to transportation. If you provide a car allowance to an employee, then you’re providing them with the funds to purchase their car. A mileage reimbursement ensures you’re not wasting money. There is no federal mandate for private companies requiring a mileage reimbursement or a car allowance. The benefits package in the UK is comprehensive and includes everything from healthcare to wellness to transportation. Get a free callback from one of our regional experts today. Plus, employees are happier. ... 6 Oct 2020 ★ ★ ★ ★ ★ Current Azure Specialist in London, England. Let’s go over the differences between a car allowance and a mileage reimbursement. It’s a sum of money you add to the employee’s annual salary for the purpose of allowing them to buy or lease a vehicle. Once the staff member buys (or leases) a vehicle, they’ll be able to claim mileage allowance. A mileage reimbursement often requires employees to maintain a mileage log. £8,200 for senior managers. We use necessary cookies to make our website operate. A company car typically incurs much heavier tax payments than a car allowance. A recent survey found that the average car allowance in the UK is as follows: Then, you need to include a car allowance clause in the employee’s contract. Most companies offer a mileage reimbursement at a cents-per-mile rate. On the downside, businesses may not be getting the most effective ROI from a car allowance policy. What about the employee who drove far more miles this month? If you use your personal car for your own business, you can take a mileage deduction to save on your taxes. This type of cookie collects information in a way that does not directly identify anyone. A company car is a perk that helps recruit and retain great staff. In this instance, you can use the government’s calculator, which you can find here. Company car vs car allowance Overall, choosing a cash allowance is the more flexible option, since this cash can be used for a variety of purposes, or to finance your dream vehicle. As a business, you should include your allowance entitlement in your contract, as well as the staff member’s responsibilities to their vehicle. However, it is worth noting that you can still give mileage allowance in addition to car allowance if you wish. It also raises a number of questions from the employee. Does your employee really need $300 a month? It’s meant to cover the costs of using your own car. Reiterate that the employee is responsible for maintenance, insurance, etc. With a non-accountable plan, reimbursements are reported as taxable pay. Another consideration when pitting company car v allowance are the tax implications. Please be aware that we use various Cookie technology across our website. Oct 6, 2020 ★ ★ ★ ★ ★ Current Azure Specialist in London, England. Companies do this to attract and keep employees. For more detailed information on how the cookies we use work and how to opt out, please see our Cookies Page. That’s the major difference between it and a car allowance. This practice is often more efficient for businesses. We’ll go into this in further detail later in the article. If you’re deducting allowance from their annual earnings, then this is incorrect. You may disable these by changing your browser setting, but this may affect our websites functionality and your user experience. Under an ECOS, the car is owned by the individual but paid for by the company. With an accountable plan, companies don’t have to report these as pay. If you provide an employee with a vehicle, then you’re responsible for the repairs, MOTs and services to it. You should receive this allowance upon employment and select an appropriate vehicle of your choice. Company car, annual leave and sick pay . The mileage for motorcycles, bikes, and other vehicles varies, again refer to the HMRC advisory fuel rates. It’s your choice what approach will best fit your business needs. It’s for this reason that you shouldn’t need to use a car allowance tax calculator, as many employers often request, as you just calculate the employee’s tax as normal.