Business Recovery: Company car versus car allowance, which one should get left behind?

Company car versus car allowance, which one should get left behind?

The fundamental difference

With the company car option the company manages costs of insurance, financing, maintenance and in some instances, fuel in full – the company owns or leases the vehicle but the employee is taxed for the use of the company car. With the car allowance or travel allowance option the employee pays for costs of insurance, financing, maintenance and fuel as the employee owns the vehicle but is compensated for the travel made during operational hours.

How company car and car allowance options have changed

In the past the company cars were not clearly defined and were open to abuse, being used for holidays, fishing trips etc. When the vehicles were eventually returned they didn’t achieve resale value, and there were very little control mechanisms in place. Which made many businesses question whether this was the right choice for them. Avis Fleet will assist with putting policies in place to help with the measurables to effectively control cost including everything from fuel cost, to CO2 emissions, and the different grading in terms of benchmarking. So the benefit to our customers is that we can put the effective elements in place to mitigate risk.

Businesses used to have a limited choice of company cars which could be selected. In order to become an employer of choice they then started to look at the car allowance option. So in the past the car allowance option became, from a SARS and tax perspective, the more favourable route to go for a company. Companies chose this option because it gave responsibility over to employees who were given their package and they could choose whatever vehicle they wanted. After the National Credit Act employees couldn’t overextend their credit anymore which meant they had to choose vehicles that were more appropriate.

Tax legislation 

Two years ago the South African Revenue Services (SARS) changed the tax legislation so that  company car and car allowance are now more similar.

The danger with travel allowance

One issue with this option is that staff may be overestimating mileage so that they can keep the money that they are paid out per kilometre. This activity puts businesses at risk and throws off important data. Travel allowance is becoming a less popular option because it is often abused.

Whichever option you prefer for your business, or if you would like both options: company car and car allowance in the same company depending on your company policy, the individual needs of employees and their role in the company and the needs of the business, Avis Fleet will tailor solutions to your needs. Use fleet services to optimise your business processes. For more information about our fleet solutions click here, or feel free to contact us directly with any questions that you might have regarding our solutions.