Company Car Clauses and Policies
How company car entitlements work in employment contracts. Understand car allowances, benefit in kind tax, and private use rules.
Company car entitlements should be clearly documented, covering eligibility, usage, and tax implications.
Company Car vs Car Allowance
Company Car
Employer provides the vehicle:
- Company owns or leases the car
- Company pays insurance, tax, maintenance
- Employee pays benefit in kind (BIK) tax
- Fuel may or may not be provided
Car Allowance
Cash payment to employee:
- Employee buys/leases own vehicle
- Fully taxable as earnings
- Employee pays all running costs
- May claim business mileage expenses
Tax Comparison
| Factor | Company Car | Car Allowance |
|---|---|---|
| Tax basis | List price × CO2 rate | Full amount taxable |
| NI (employee) | None | Standard rate |
| NI (employer) | Class 1A on BIK value | Standard rate |
| Electric vehicle | Very low BIK (2%) | No advantage |
| High earner | BIK rate capped | Full 45% tax |
Electric company cars are often more tax-efficient than allowances.
Company Car Clause
Entitlement
"You are entitled to a company car in accordance with the Company Car Policy in force from time to time. The Company will provide a car from the approved list appropriate to your grade."
Private Use
"The car is provided for business and private use. You must ensure the car is available for business use at all times."
Fuel Provision
"The Company will provide a fuel card for business use only. Private fuel costs are your responsibility unless you opt to pay the fuel benefit charge for private fuel."
Responsibilities
"You are responsible for:
- Keeping the car in good condition
- Reporting any damage or defects promptly
- Ensuring only authorized drivers use the vehicle
- Complying with all traffic laws
- Maintaining valid driving license"
Discretionary vs Contractual
Contractual Benefit
If the car is contractual:
- Removing it requires consent or fair process
- May be constructive dismissal if removed
- Value counts for pension, bonus calculations
Discretionary Benefit
"The provision of a company car is discretionary and does not form part of your contractual terms. The Company reserves the right to withdraw or vary this benefit at any time."
Car Allowance Clause
"In lieu of a company car, you will receive a car allowance of £[X] per month. This is taxable and subject to National Insurance. You must:
- Maintain a suitable vehicle for business use
- Hold valid insurance covering business travel
- Maintain your vehicle in roadworthy condition"
Mileage Claims
With Car Allowance
Employees can claim tax-free mileage for business travel:
- 45p per mile for first 10,000 miles
- 25p per mile thereafter
- Some employers pay more (excess is taxable)
With Company Car
- No mileage claims for fuel if fuel card provided
- Advisory fuel rates if employee pays and reclaims
Loss of License
Clause Wording
"If you lose your driving license for any reason, you must inform the Company immediately. The Company may:
- Require you to return the vehicle
- Assign you to alternative duties
- Suspend your car allowance
- Terminate your employment if driving is essential"
Practical Considerations
- Distinguish between roles requiring driving
- Consider reasonable adjustments
- Follow fair procedure before dismissal
Return of Vehicle
On Termination
"On termination of employment, you must return the company car immediately, together with:
- All keys and fobs
- Fuel card
- Service history and documents
- Any accessories provided"
Deductions for Damage
"You authorize deduction from your final pay for any damage beyond fair wear and tear, or any unpaid parking/traffic fines."
During Sickness or Maternity
Long-Term Absence
Policy should address:
- Whether car can be retained
- Any limits on retention period
- Arrangements for collection
- Continued insurance cover
Maternity Leave
- Car is a contractual benefit that must continue
- Cannot withdraw during maternity leave
- Private use continues during leave
Electric Vehicle Schemes
Many employers now offer:
Salary Sacrifice
- Employee gives up salary in exchange for EV
- Significant tax savings due to low BIK
- Popular with higher earners
Workplace Charging
- Employer provides charging facilities
- Tax-free benefit if available to all employees
Related answers
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Frequently Asked Questions
- Is a company car taxable?
- Yes. Company cars available for private use are a taxable benefit in kind. The tax is based on the car's list price and CO2 emissions. Electric cars have lower tax rates.
- Can my employer take away my company car?
- If the car is a contractual benefit, removal requires your agreement. If it's discretionary, the employer may withdraw it with reasonable notice. Check your contract for the exact terms.
- What is a car allowance?
- A car allowance is a cash payment instead of a company car, allowing employees to buy or lease their own vehicle. Unlike a company car, the full allowance is subject to income tax and National Insurance.