Company car allowance calculator

A company car allowance is cash paid with salary instead of a car, and it is taxed as salary: income tax at the driver's marginal rate and employee National Insurance come off it, and the employer pays Class 1 National Insurance on top.

The car, by contrast, costs the driver income tax on the benefit in kind and costs the employer Class 1A on the same figure, and the car comes with insurance, servicing and depreciation paid. So the comparison is never allowance against car; it is allowance after tax and National Insurance, less what the driver would spend running their own car, against the tax on the car's benefit.

This worksheet puts both sides on the page for the driver and for the employer, from the allowance offered, the driver's rate, the car's benefit in kind and the driver's own running costs.

Take the allowance offered, deduct income tax at the driver's marginal rate and employee National Insurance at the rate that applies to that slice of earnings, and what is left is the cash. From that comes what the driver would spend keeping a comparable car on the road: finance or depreciation, insurance, servicing, tyres.

Against it sits the car: the driver pays tax on the benefit in kind at the same marginal rate, worked on the company car tax calculator on this site, and spends nothing on the car's running costs.

For the employer, the allowance costs the cash plus Class 1 employer National Insurance, while the car costs its lease or depreciation plus Class 1A on the benefit; the sheet shows the National Insurance halves of both so the employer can add its own lease cost. A low-emission car with a low percentage usually beats the allowance for a higher-rate driver; a high-emission car rarely does.