Businesses have offered company cars to job-need drivers (and as a perk to retain staff) for decades. They are owned or leased by the employer, but also available for drivers to use outside work hours, just like a privately owned car. 

What are the advantages of a company car? 

You’re unlikely to get any unexpected bills. Employers pay for the car (or lease it), most of the running costs – so there’s no insurance, servicing or replacement to worry about, while company car tax is a predictable monthly outlay.

You’ll usually get a new car every three or four years and, provided it’s in good condition at the end of that contract, you can just hand it over without stumping up any extra cash.

It can also be an incredibly cheap way to drive a new car. Company car tax has incentivised low-CO2 vehicles for almost 25 years, and there are some ultra-low rates for vehicles emitting 50g/km or less, which covers most plug-in hybrid (PHEV) and all electric vehicles (EVs). If your lifestyle suits a plug-in, then your monthly tax bill will be significantly lower than the cost of buying or leasing the same vehicle privately.

What are the disadvantages of a company car? 

As your employer is footing the bill, they’re in control. Company car choice lists are often banded by pay grade, with caps on list prices, CO2 emissions and in some cases restricted manufacturers and access to optional extras. That means you might not get the car you really want, or the features you really need.

Salary Sacrifice

Salary sacrifice schemes are a grey area between company cars and leasing privately. They enable you lease a car through your employer, typically including servicing, maintenance and breakdown cover. However, unlike a company car, they’ll deduct the cost of the monthly lease from your pre-tax salary. 

What are the advantages of salary sacrifice? 

Unlike a cash allowance, salary sacrifice lets you access your employee’s buying power and discounts, which can reduce the monthly outlay. Some suppliers are also offering a choice of used vehicles for drivers with lower budgets. 

The savings are even bigger if you can live with an EV or PHEV. If you choose a car rated at 75g/km CO2 or less, you’ll pay Benefit-in-Kind on the vehicle’s ‘taxable value’ (an emissions-weighted share of its list price) instead of the cost of the monthly lease (which is typically a much larger amount). That’s usually less tax than you’d pay on the income you’re using to pay for the car.

Ultra-low BiK rates for vehicles under 51g/km CO2, and an influx of cheaper new EVs, have fuelled a renaissance in salary sacrifice recently. The UK’s combined fleet of salary sacrifice vehicles more than doubled in 2025 (to 226,000 vehicles), while 98% of new deliveries are EV (77%), PHEV (19%) or hybrid (2%), according to British Vehicle Rental and Leasing Association (BVRLA).

What are the disadvantages of salary sacrifice? 

Although salary sacrifice extends some of the perks of a company car to employees who wouldn’t normally be eligible, you won’t get as much choice as you would buying or leasing privately.

Monthly payments can’t take your remaining salary below the national minimum wage, there’s no option to buy it outright at the end of the contract, and you’ll have to hand the car back if you leave the company. 

The tax system also effectively works as a CO2 cap. If you opt for a car emitting more than 75g/km CO2 – and that covers everything you can’t plug in – you’ll either pay Benefit-in-Kind on either the taxable value, or the monthly lease costs, and it’s whichever of those is the higher figure. Even if your employer lets you select something thirsty (and plenty won’t), the tax costs could make it cheaper to buy or lease something privately.

Cash Allowances 

Some employers will let drivers opt out of a company car scheme and take a cash allowance instead. It’s a salary top-up that you can use to buy or lease a car privately. 

What are the advantages of cash allowances? 

As a private buyer, you are not restricted by your company car policy. HMRC treats the money as extra wages, so you’ll pay income tax (typically at 20% or 40%) and national insurance contributions to receive it, but the car is yours. That means you can choose what you want, replace it whenever you like, and take it with you if you leave.  

Cash allowances have found a niche among drivers with a job need for a vehicle that would be taxed heavily under the Benefit-in-Kind system – such as an MPV for large families, or a diesel for towing. 

What are the disadvantages of cash allowances? 

By opting out of the company car scheme, you are responsible for adequate work-use insurance, keeping it roadworthy and maintained properly and staying within mileage limits if it’s leased or financed.