Jan 5, 2024
Employers pay a car allowance to employees who use their private vehicles for work purposes on top of their salary.
It’s proving a popular alternative to leasing or owning a fleet of company cars as it removes the pressure of constant maintenance. But as business travel moves away from private-use vehicles and towards sustainable alternatives, you should question whether it’s worthwhile for your organisation.
This article will help you give you everything you need to decide if a car allowance is the right fit for your company.
A car allowance is a payment made by employers to employees for using their own cars as part of their job.
This allowance should cover all the costs of travelling for work by car, such as fuel, parking, and maintenance. But employees can also spend money on purchasing a new vehicle — as long as they intend to travel for work.
For employees, an allowance means they can:
As a business, you won’t need to maintain a fleet of company cars or upgrade vehicles every few years.
Employees usually receive a car allowance as part of their monthly salary. How you spend this money is up to you. But there’s no lack of expenses to choose between:
Employers pay car allowances on top of the employee’s annual salary. With the cash in hand, they can spend the money how they wish — whether it’s to cover general running costs or purchase a new vehicle. But they must use this vehicle whenever they travel for work.
It’s worth noting that a car allowance is a benefit, not a reimbursement of expenses. Should repairs be needed as the result of an accident on a work-related trip, then the employee must pay.
The total car allowance an employer pays out to employees may depend on several things, including:
Let’s look at the average car allowance in regions around the world. 👇
The typical car allowance paid to employees in Europe ranges from €500 up to €800. But there are cases where amounts as high as €1,400 are paid.
Many European companies prefer to pay a mileage allowance to employees who use their own vehicles for work. This ranges from 19 cents up to 90 cents per kilometre.
Depending on the country, there are different factors taken into account that determine the final payment:
And in France, there’s the chevaux vapeur (CV), or horsepower tax.
Average car allowance in the UK ranges from £4,600 up to £10,300 per year (£383-£858 per month) — with the total amount paid to an employee often dependent on their seniority.
Upper management may receive car allowances of up to £10,000, while most employees will get a vehicle allowance at this scale’s lower or middle end.
Companies in South Africa support their employees with fuel, maintenance, and general operating costs, with an average car allowance of R5,500 per month (around €268).
🌐 Bolt Business is available in all the regions mentioned above. Using our corporate ground travel service saves your company from paying a car allowance for depreciating and costly assets.
In most countries, a car allowance is considered taxable income.
If your employer pays you an auto allowance, it’s part of your annual salary. In the eyes of the authorities, your salary plus the allowance will be your new total salary — this may push you into a higher tax bracket.
Find out whether employee car allowances are taxable in Europe, the UK, and South Africa below. 👇
Vehicle allowances are subject to standard income tax across Europe.
However, employers can receive tax-free mileage reimbursement up to a certain amount in some countries, such as Germany, Croatia, the Netherlands, Spain, and Norway (at the time of writing).
Car allowance in the UK is considered a benefit, which makes it taxable.
The basic tax income rate in the UK currently stands at 20%, which applies to anyone earning between £12,571 and £50,270. If your salary is £45,000 and your employer will pay an annual allowance of £5,500, your new salary will be £50,500, moving you into the next tax bracket (40%).
In this scenario, you’ll end up worse off because £45,000 after tax is £34,000, while £50,500 after tax is £30,500 (not taking into account other outgoings either).
Anyone close to moving up a tax bracket may want to explore alternatives to the car allowance for this reason alone.
In most cases, any allowance paid to employees by the employer is considered taxable income in South Africa.
Tax is usually 80% of the monthly car allowance. However, the tax rate can drop by 20% if the employer believes 80% of the vehicle’s usage will be for work purposes in the coming year.
Worth noting:
Cars have a lot of expenses, which means there’s a lot to consider as part of a car allowance. Including:
Remember that a car allowance is taxable, so your employees won’t receive the full amount.
💡 To work out a fair allowance for employees of all levels, it’s a good idea to consult with your Human Resources department.
Fuel costs are important as your employees will often fill the tank. EuroDev provides average mileage reimbursement for European countries. Use the average reimbursement payments below as a guide:
South Africa’s tax-free rate until April 30, 2024, is 464 cents per kilometre.
Making a clear vehicle allowance policy is key if you offer vehicle reimbursement to any number of your employees.
There are three essential parts to any car allowance policy:
Get more details on each of these below. 👇
First and foremost, you must outline who’s eligible to receive car reimbursements. A car reimbursement won’t be essential for every employee, so clarify this within your policy. Also, highlight the maximum threshold for each role.
Insert conditions for how much you will pay employees based on their role and how much they need to travel. For example, salespeople may need to travel more than those in other roles.
You may want to state in your vehicle allowance policy that maintenance is the employee’s responsibility.
💡 Remember to include a clause in the policy as protection if the individual’s role changes.
You can take a couple of approaches to your company’s car allowance policy:
A car allowance takes the responsibility of vehicle ownership away from the company. But when the employee travels for work, their safety is your responsibility.
It’s essential to provide your team with written guidance on safely using the vehicle to reduce the risk of damage or harm to the driver and passengers.
Company cars are leased or owned by the employer, who handles all related costs, such as fuel, maintenance, and insurance. They’ve been an attractive employee perk for many years, but the growing list of associated expenses encourages many businesses to look for alternatives.
Investing in a fleet of company cars means paying out for fuel, insurance, services, repairs, tolls, and much more. You’ll also need to replace the vehicles every few years and face the reality of cars being depreciating assets. So, while company cars have been popular for several years, it makes sense to explore alternatives.
Vehicle allowances are one option, allowing you to pass the responsibilities of vehicle ownership on to your employees. But it’s tough to track spending and measure usage. Even if you did, you’d be better off spending time on tasks that add value to your business.
Turning to an employee car allowance offers your team more flexibility and freedom than they might otherwise get with a company car. For example, they can:
But for all of the benefits, there’s one considerable downside: car allowance is taxable. An employee’s amount after tax could be minimal — especially for those in higher tax brackets.
Employers face unexpected maintenance bills and depreciation concerns when owning company cars.
But passing the costs of maintaining a car onto your employees means they may need regular increases in their allowances over time. And there’s no guarantee that all employees will want to use their personal vehicles for work purposes.
It’s also important to remember that not everyone holds a driving licence. And this shouldn’t get in the way of hiring the best person for the job. Neither company cars nor car allowances cater for these people — thus limiting whom you can employ.
Companies and employees will face rising fuel prices and unpredictable maintenance costs. And that’s why neither of these options could be the best choice for your team’s business travel.
Owning and maintaining a fleet of company vehicles has never been more expensive. Now, companies are turning to dedicated ground travel management services and giving their team a mobility allowance. Find out everything you need to know about Bolt Business — our corporate ground travel service.
Taking this step relieves companies and employees from paying out for fuel, maintenance, and insurance. You also don’t need to own a depreciating asset.
Bolt Business gives your team an affordable, safe, and reliable way to travel for work. And you have complete control over how your team can travel from a Company Dashboard:
Anyone you add to your Bolt Business account can take work rides with Bolt and charge them to the company. They’ll see your company listed as a payment method in their Bolt app and won’t be able to spend more than you allow.
Your team can make their trips greener by choosing an electric vehicle or hopping on one of our electric scooters or e-bikes — perfect for shorter work trips and employee health incentives during the warmer months.
💡 Bolt services are available in 45 countries and 500 cities across Europe and Africa. Giving your team a reliable way to travel wherever business takes them — something that a car allowance can’t always support.
An auto allowance is paid to an employee to support the costs of using their personal vehicle to travel for work. Employers often choose this benefit as an alternative to investing in a company car.
A company car allowance is a monetary benefit added to your salary to purchase or maintain a vehicle for work purposes.
A cash allowance on a car often refers to a deduction on the retail price of a new or used car. This is not to be confused with a car allowance paid to employees by their employer, allowing them to use their vehicle for work-related travel.
Average car allowances vary depending on how often employees use their private automobiles for work. On average, employers pay employees between £300 and £800 monthly. But this can be as high as £1,400 per month for c-suite and employees who spend lots of time on the road.
The company car allowance is taxable in most countries, meaning the car allowance agreed between the employer and employee is before tax. It’s worth noting that the final amount paid to those in higher tax brackets may be minimal.
Business travel is moving forward, and your company can, too, with Bolt Business.
Sign up with Bolt Business today to give your team an affordable, reliable, and sustainable way to travel for work.
