Company car, cash, or sacrifice?

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Three doors, not two

Most drivers think the decision is car or cash. It's usually three:

• Company car — the employer provides and funds the vehicle. You pay Benefit-in-Kind (BIK) tax on it. Servicing, maintenance, tyres, insurance and road tax are typically bundled.
• Cash allowance — a taxable cash sum through payroll. You source, fund, insure and maintain the vehicle yourself. You claim business mileage back at HMRC's approved rate.
• Salary sacrifice — you give up gross salary in exchange for a vehicle, usually an EV. Tax and NI are calculated on the reduced salary, and you pay BIK on the car.

These are structurally different animals. One is a benefit, one is income, one is a deduction. Comparing the monthly figures without understanding that is how people end up several thousand pounds down over a three-year term.

The monthly payment is the least interesting number in the decision.

Company car

What BIK actually costs you

Benefit-in-Kind is calculated on the car's P11D value — the manufacturer's list price including VAT, delivery and factory-fitted options, but excluding first registration fee and road tax. Critically, the P11D value never depreciates. A four-year-old company car is taxed on what it cost new.

The formula is simple: P11D × appropriate percentage × your marginal tax rate.

The EV rate rose from 3% to 4% on 6 April 2026, and is legislated to reach 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. Petrol and diesel bands climb one point a year to a 39% cap by 2029/30. The gap narrows, but it does not close within any normal replacement cycle.

The fuel card trap

If your employer provides fuel for private journeys, a separate fuel benefit charge applies. For 2026/27 the multiplier is £29,200, multiplied by the same appropriate percentage as the car.

Advisory fuel rates — company cars only

These are the pence-per-mile figures for reimbursing business travel in a company car, or repaying private fuel. Reviewed quarterly. Current set effective 1 June 2026:

For fully electric company cars there are now two rates: 7p per mile for home charging and 15p per mile for public charging. If your actual cost per mile is demonstrably higher — rapid charging on a motorway run, for instance — you can be reimbursed more, provided you can evidence it.

Cash allowance

The number that isn't the number

An allowance is taxable income. It goes through payroll and attracts income tax and National Insurance at your marginal rate. A headline £6,000 is not £6,000.

Against that net figure you must fund: the vehicle, insurance, servicing, maintenance, tyres, MOT, road tax, breakdown cover, and depreciation. Industry cost data for 2026 puts realistic annual motoring costs for a typical driver between £3,400 and £5,000, and higher for a newer or larger car. Depreciation alone runs at £2,000–£3,500 a year on a mainstream new car, and is the single largest cost most drivers never count.

Business mileage — the offset

This is where allowance drivers recover ground, and the rules changed materially this year. HMRC's Approved Mileage Allowance Payment (AMAP) rate for cars and vans rose from 45p to 55p for the first 10,000 business miles, announced 21 May 2026 and backdated to 6 April 2026. It was the first increase since 2011.

The same rates apply whether your own car is petrol, diesel or electric — there is no separate AMAP rate for a privately owned EV. If your employer reimburses below the approved rate, you can claim the shortfall as Mileage Allowance Relief via form P87 or self assessment. Keep a log: dates, destinations, purpose.

Funding your own

PCP, contract hire, and the mileage clause

If you take the allowance, you become the funder. The two mainstream routes behave very differently, and the difference is about who carries the depreciation risk.

Personal Contract Purchase (PCP)

You pay a deposit, then monthly payments covering only the vehicle's predicted depreciation over the term. At the end you choose: pay the balloon (the Guaranteed Future Value) and own it, hand it back, or use any equity above the GFV toward the next car. Lower monthly payments than hire purchase, with an option on ownership.

The risks: mileage is capped and excess is billed at roughly 6p–12p per mile on mainstream cars, 12p–20p on premium. Condition is inspected against the BVRLA fair wear and tear standard. And if you exercise the option to buy, you pay more overall than hire purchase, because interest has accrued on the balloon for the whole term.

Personal Contract Hire (PCH / lease)

A pure rental. Fixed term, fixed mileage, hand it back. You never own it and there is no equity — but you also carry no residual value risk, which in a volatile used market is worth real money. Monthly payments are typically materially lower than PCP on the same car, because you are not paying interest on a balloon you may never use.

Getting the mileage band right

Under-declaring mileage to shave the monthly payment is the most common and most expensive mistake in the market. The saving is a few pounds a month; the excess charge at the end is billed on every mile over, for the whole term. On a three-year deal at 10,000 declared but 15,000 actual, that's 15,000 excess miles — at 10p, £1,500 payable on handback.

Declare what you will actually drive. If you're an allowance driver doing heavy business mileage, that number is bigger than you think.

Salary sacrifice

The third door

You exchange gross salary for a vehicle. Because the deduction comes before income tax and NI, and because ultra-low-emission vehicles are exempt from the usual optional remuneration rules, the effective cost is substantially lower than funding the same car from net pay. You then pay BIK — 4% on an EV in 2026/27.

Schemes are almost exclusively electric, and typically bundle insurance, servicing, maintenance, tyres and breakdown into the monthly figure. The UK salary sacrifice fleet more than doubled during 2025 to around 226,000 vehicles, with the overwhelming majority of new deliveries being EV or PHEV, according to BVRLA data.

What it's genuinely good at

• No personal credit check. The lease liability sits with your employer, not you. For anyone with a thin or damaged credit file, this is often the deciding factor.
• No deposit. No capital outlay at the start.
• Everything bundled. One deduction covers the car and the running costs, which makes budgeting genuinely predictable.
• Tax efficiency scales with your rate. A 40% payer benefits considerably more than a 20% payer.

What it costs you

• You hand it back. No purchase option, no equity, ever.
• It's tied to your job. Leave the employer and the car generally goes with the role. Early termination charges can be significant. If you're likely to move within the term, understand the exit terms before you sign.
• It reduces gross salary. Which brings us to the point almost nobody raises at the point of sale.

Salary sacrifice also cannot take your pay below the National Minimum Wage, which caps the practical vehicle value for lower earners. And check whether your scheme affects pension contributions, since these are frequently calculated on post-sacrifice salary.

Fuel type

Petrol, diesel or electric

The tax system points hard at electric. Whether your life does is a separate question, and it comes down to three things.

Annual mileage

Diesel still earns its keep at genuinely high motorway mileage — the economy holds up and the fuel is available everywhere. But the BIK position is punishing on a company car, and the used market for diesel is softening. Below roughly 12,000 miles a year, the case thins considerably.

Journey type

This matters more than total mileage. Short, cold, stop-start journeys are the worst case for a diesel particulate filter — DPF regeneration needs sustained running to complete, and a car that never gets one will eventually present you with a bill. If your driving is school run, town, and the occasional trip, petrol or electric is the better engineering answer regardless of tax.

Conversely, if you're doing long unpredictable days across a region with no fixed base, charging logistics stop being theoretical.

Charging infrastructure — be honest

The single question that decides an EV: can you charge at home, off-street, overnight?

If yes, an EV is cheap to run — home charging on an EV tariff can cost around £210–£245 a year for a typical driver against £1,200+ to fuel a comparable petrol car. If no, you are dependent on public charging, and the economics change substantially. HMRC's own two-tier advisory rate — 7p home versus 15p public — is the clearest possible official acknowledgement that these are different propositions.

The public network has expanded fast, past 120,000 connectors nationally, but coverage is uneven and reliability varies by operator. Check the routes you actually drive, not the national headline.

The practical rules

New or used? And what must it be insured for?

Two questions that decide whether the allowance is even workable — and both are answered by your employer's policy, not by HMRC.

Does the vehicle have to be new?

Almost never, but almost always with conditions. Company car policies define the fleet; allowance policies define the boundaries. Common restrictions on an allowance vehicle include:

• Maximum age — typically three to five years at any point during use, not just at purchase. This one catches people out: a four-year-old car bought under a five-year cap becomes non-compliant within twelve months.
• Maximum mileage on the clock, often 80,000–100,000.
• Minimum doors — usually four or five, where customers or colleagues may be carried.
• CO2 ceiling, increasingly common as employers pull grey fleet into ESG reporting.
• Condition and image standards, where the vehicle is seen by customers.
• Valid MOT and road tax, evidenced annually.

Financially, used is usually the stronger play on an allowance. A mainstream car loses 50–55% of its value in three years and around 65% by year five. Buying at two or three years old means someone else has absorbed the steepest part of that curve — which is exactly why an allowance can work well for a disciplined buyer and poorly for someone who buys new and hands the depreciation to themselves.

Get the policy in writing before you buy. If it caps at five years and you've bought a six-year-old car, that's your problem, not theirs.

What insurance do you actually need?

This is the most commonly and most dangerously misunderstood point in the entire allowance conversation.

Social, domestic and pleasure is not sufficient. Nor, in most cases, is SD&P plus commuting. If you drive to anywhere other than your permanent workplace as part of your job, you need business use cover.

The question almost nobody asks

What happens if you're off sick?

You are being asked to commit to a three or four year finance agreement. Nobody in that conversation will raise what happens if you can't work for six months. The answer is different in each of the three routes, and the allowance is the exposed one.

The allowance scenario, in sequence

Company sick pay commonly runs full pay, then half pay, then Statutory Sick Pay. If your allowance is treated as pay, it steps down with it. Meanwhile:

• Your finance payment stays at 100%.
• Your insurance renewal still arrives.
• Your business mileage reimbursement drops to zero, because you aren't driving on business — and on the allowance route, that mileage income is often what made the numbers work.

Statutory Sick Pay is a few hundred pounds a month. A £400 monthly car payment against SSP is not a shortfall; it's a crisis. And crucially, most employment contracts are silent on this point entirely — the question simply hasn't been considered.

Salary sacrifice: ask when protection starts

Salary sacrifice deductions cannot take your pay below National Minimum Wage, and cannot be taken from statutory pay at all. Good schemes carry early termination protection covering long-term sickness, redundancy, family leave, and loss of licence on medical grounds — meaning the employer isn't left holding the lease and you aren't billed an exit charge.

Coverage varies sharply between providers. Some cover from day one; others only after three or six months. Ask the specific question: when does protection begin, and which events does it cover? The difference between day-one cover and six-month cover is the difference between a protected benefit and a personal liability.

Side by side

Where each one wins and loses

Before you sign

The questions to ask

• Is the allowance pensionable? Most are not, which is a long-term cost that never shows up in the monthly comparison.
• What mileage rate does the policy actually pay, and has it been updated to the 55p approved rate?
• If I take a company car, can I decline the private fuel benefit and repay at advisory rates instead?
• On salary sacrifice: what happens if I leave, am made redundant, or go on extended leave?
• Does the scheme calculate my pension on pre- or post-sacrifice salary?
• What is my realistic annual mileage, including business, commuting and personal? Write it down before you're asked.
• Can I charge at home overnight, and what would installation cost if not?
• Am I applying for a mortgage or any significant credit within the next three years?
• Does my own insurance cover business use, and what does adding it cost?
• If I fund privately: what is the excess mileage rate, and what is the condition standard on return?
• Is the allowance reduced or withdrawn during periods of reduced sick pay? Get this in writing.
• What are the vehicle rules — maximum age, maximum mileage, CO2 cap, minimum doors?
• Does the age cap apply at purchase, or throughout the period I hold the car?
• Which insurance class does my role actually require — Class 1, 2 or 3?
• On salary sacrifice: when does early termination protection start, and what events does it cover?
• Who checks my licence, MOT and insurance certificate, and how often?

The right answer isn't the cheapest monthly figure. It's the option that still works in month thirty-four.

The short version

• Salary sacrifice usually wins for an EV driver who is a higher-rate taxpayer, can charge at home, and expects to stay put — particularly if credit or deposit is a constraint.
• The allowance wins where business mileage is high, the vehicle need is specific, or the flexibility to own an asset genuinely matters — provided you can fund it and the credit implications are understood.
• The traditional company car remains sound for low-emission vehicles and for anyone who values not carrying maintenance, tyre and residual value risk personally. It is expensive on anything with meaningful CO2.
• Nobody should accept a private fuel card without doing the arithmetic first.

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