How to choose between a cash allowance and a company car

Tristan Young

04 Feb 2022

In the new motoring world where we’re all being encouraged to go electric, the ultra-low company car taxation on full EVs and plug-in hybrids seem to make sense to all, but if you’re being offered the option of a cash allowance as an alternative to a company car it’s worth checking which is best for you with our simple guide.

So your company car is due for renewal, but you’re also being offered the alternative of a cash allowance, which should you pick? Or perhaps you’re about to start a new job and the new company is offering a car or cash as part of your renumeration, how do you choose which is best for your needs and your pocket?

If you’re purely focussed on the money in your wallet, then things are simple, but if there are other practical or emotional factors to take into account.


The start point must be the money. That’s not just the main Pound-note number that you’re being offered as the cash alternative to a company car, but everything that goes with it. We’re talking factors such as what this amount is supposed to cover, your tax position and how you’ll be paid the ‘cash’ alternative.

While it’s near impossible to list all the possible scenarios offered by employers, it is likely your company will offer some form of an amount of money plus a business mileage allowance.

Within this it’s also possible that the employer will take into account the extra tax you’re paying on the allowance, compared to a company car in order to make it a more level playing field.


At first the attraction of a sum to go off and choose your own car may seem tempting. Being handed, for instance, £500 a month to buy any car may sound great, but you’ll need to factor in all of the running costs.

Items that you’ll need to include in your sums include; finance costs, depreciation, servicing, maintenance, insurance, fuel, road tax and to an extent your time sorting everything out.

Many car brands, leasing companies and dealers offer servicing packages that mean you’ll be able to fix your costs for this to some degree.

If you’re thinking of leasing a car or opting for a PCP, then you’ll potentially need to think about a deposit too. However, with a lease or PCP the finance costs are included.


To come up with a true costs figure you’ll also need to know your likely number of business miles per year and the amount your employer will pay per mile.

This is because while a company may pay 10p a mile for your business miles fuel, you can claim tax relief at 45p a mile for the first 10,000 miles and 25p a mile thereafter.


The balancing factor you should also include in your sums is that if you take a company car you will be paying company car tax.

While electric cars currently attract very low rates of company car tax, if you want or need a car that’s powered by a combustion engine then in the company car model you could easily be paying several thousand Pounds a year in tax. Take the cash option and company car tax doesn’t apply. However, you are likely to be paying income tax on the cash amount if it’s simply added to your usual pay packet.

Head and heart

Using all this information will allow you to calculate which is best financially for you. However, there’s also the more subjective aspects that need to be considered.

If there isn’t a vehicle on the company car list that suits your needs, then opting out and taking the money may be a necessity even if it doesn’t make sense financially.

There’s also the hassle-factor of finding, buying and running your own car that makes a fully managed company car more attractive.

Realistically, at the moment, the tax savings of running a battery electric vehicle mean these are the only sensible financial option for those taking a company car. And if you want the equivalent petrol or diesel car then the cash option is worth investigating.

However, should the government change its position on promoting electric vehicles through benefit-in-kind tax breaks, then the sums will need to be done all over again.

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Tristan Young

04 Feb 2022