Car or car allowance
Car or car allowance

The following Employment practice note provides comprehensive and up to date legal information covering:

  • Car or car allowance
  • Cars and car allowances not wages
  • Tax status of cars/car allowances
  • Amount of tax payable
  • Compensation for loss of a company car

Many employers provide company cars for certain employees as part of their remuneration package, or give them a car or fuel allowance.

For sample contract wording, see Precedent: Clauses—car or car allowance.

Cars and car allowances not wages

A company car is not wages for the purposes of the Employment Rights Act 1996 (ERA 1996)—a benefit in kind is not wages unless it is vouchers, stamps or a document which can be expressed in monetary terms and is exchangeable for money, goods or services. This means that a company car does not count towards the value of a week's pay (see Practice Note: Calculating a week’s pay) nor is it protected by the provisions relating to unlawful deductions from wages (see Practice Note: Deductions from wages).

A car allowance is not 'wages' for the purposes of the ERA 1996 if it merely refunds an employee for travel expenses they have incurred in their employment. However, an allowance for the private use of a car will count as 'wages'.

An employer cannot count the value of a benefit in kind such as a car or petrol towards its obligation to pay the national minimum wage—see Practice Note: National minimum wage.

Tax status of cars/car allowances

Benefits in kind, including company cars, are 'general earnings' for income tax purposes. Legislation included in Finance Act 2015 (FA 2015) abolished the £8,500 threshold at which

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