Opting out of your company car – what are your options?
Every year, the government has increased the Benefit in Kind rates for company cars, which means that they are no longer the cheap perk they used to be!
So, if you’re thinking about getting a car for work and want to opt out of your company car scheme, what are your options and what else do you need to consider?
Own or rent?
One of the most important decisions to make when getting a car for work is how you’re going to fund it.
If you’ve been on a company car scheme then you’ve been used to paying a single monthly cost for your car through your tax, and if this has been working for you personally then you might want to keep on paying in the same way.
Or you can decide to own your car and then have an asset to your name. Here we clear up these two important choices:
Renting your car
The cheapest way to rent a car is usually through a Personal Lease scheme. These are ideal if you just want to pay a certain amount each month just to use the car, and since you will and never have owned it, you can just give it back at the end of the agreement.
Generally, you’ll find that the payments you make whilst renting a car are cheaper than if you were buying, this is because renting a car can be more tax efficient for the lender since they are usually able to reclaim the VAT on the purchase of the vehicle.
Which all seems great, but remember that after paying all that money out during the agreement, the only option you have at the end of the term is to hand the car back.
Another thing to consider is the deposit you need to put down on a rented vehicle. You will need to keep your deposit low, no more than the equivalent of three monthly payments, as you’re going to need to find that money again when it’s time to buy the car.
Owning your car
Paying several thousand pounds out in one go to buy a car isn’t something that most people can do off the cuff.
A way to get around this is to take out finance. The most popular choices when opting for this are Hire Purchase (HP) and Personal Contract Purchase (PCP).
Both of these types of finances give you the option to own the car at the end of the agreement, although they both work in slightly different ways.
With HP finance, your loan is fully repaid at the end of the agreement, so the car is yours and you have nothing to pay to the finance company. This is a good option if you’re thinking about keeping your car after the term of the loan. But, you will find the payments for the same car will be higher than if you were to rent it, or you’ll be paying off the loan over a longer period, since you are paying the interest along with the full purchase price of the car. This is also an ideal option if you don’t know how many miles you’ll do in a year as there are no excess mileage fees involved.
PCP is a good half-way house. You can use the future value of your car to reduce your monthly payment, like a lease, but you have other options available to you at the end of your agreement. You can either hand it back, part exchange it, or pay the final payment (which will include a balloon payment linked to the expected future value of the car) and keep it.
With PCP it is important to think about how you’ll use the car. This is because you can be penalised for not keeping to mileage limits. Also, as you’ll be financing your car over a shorter period and will probably want to change it at the end of the term, it is important to only put in a small deposit. Ideally this should be no more than 10% of the value of the car.
What type of car?
The kind of car you buy entirely depends on your needs. If you’re doing long journeys then you’ll want a car that’s comfortable, but if you have children (or if you don’t) then you need it to be practical for your personal life too.
We have plenty of guides on our blog to help you find the perfect car for you. But in general, crossovers like the Renault Captur or Nissan Qashqai are good all-rounders – especially for those of you who have a family. They have the high driving position of an SUV, teamed up with the fuel economy and driveability of a hatchback. Plus, they are both pretty well equipped for their purchase price with most models coming with handy features like cruise control and Bluetooth connectivity.
If you don’t need the space and are perhaps likely to be driving in the town more often, then you can get funky hatchbacks like the Ford Fiesta or the Peugeot 208 are available with efficient diesel engines. It’s worth noting that the 208 comes with cruise control as standard where you’d have to look for the Titanium or Titanium X trims in the Fiesta for this – but they come with a lot of other tech too.
Some employers may let you charge running costs back to them if you have used your car for business use. But even if this is the case, you’ll still need to choose a car that is affordable to run – especially if you’re doing a lot of miles.
Whatever you may have seen about diesel recently, it is still the most viable method of eating up the miles. The newer models have even more impressive fuel economy and some of them will even cost you nothing in road tax if they were registered before 1st April 2017. The new Euro 6 diesels are a lot cleaner compared to the older versions and now their CO2 emissions are actually pretty close to the petrol versions.
Servicing and warranty
Whether you have any warranty on your car or just want it to keep running at its best, you will need to get your car serviced regularly and in accordance with the manufacturer’s recommended intervals.
If you do a lot of miles, you’ll probably meet the mileage intervals limit first rather than the time limits. Mileage intervals are different depending on the make and model of your car, but a lot of modern cars now require a service after as many as every 20,000 miles (with some even more than that!)
Some leases offer a maintenance option, so you pay a little extra each month instead of forking out a bill at the garage. Another option is to get a service plan, which will allow you to do the same thing for a used car.
You may also want to protect yourself from unexpected costs. So check out what warranty your car has left on it, or purchase a good quality extended warranty to protect yourself.