However, things may be changing. The number of companies offering the choice of cash instead of a car rose from 37 per cent in the tax year 1994/95 to 54 per cent in 1995/96. Taking cash to buy your own car is now a viable alternative.
The main cost of a company car is the income tax charged on the assumed value of the benefit you receive, which in turn depends on the age and value of the car and how much of the mileage is genuinely on company business.
The Inland Revenue's current rules require the benefit to be taxed in full if drivers do less than 2,500 miles a year on business. Above 2,500 miles and up to 18,000 miles, which covers the vast majority of company car users, the taxable benefit is estimated at 23.33 per cent of the list price and the driver is taxed on this at his or her marginal rate.
Insurance charges are usually paid by the company and are included in the taxable value of the car itself, and fuel for business use is tax- free but the assumed value of any free fuel you use for private motoring is taxable.
Despite the tax charges, many are still attracted by the fact that you do not have to spend your own money or get a loan to buy a car. When your car is off the road after an accident, a replacement car may be offered free of charge and the insurance is included. Many company car users drive a more luxurious car than they would if it was privately owned.
In order to decide whether to take a company car or take cash and buy your own car you need to know not just the taxable benefit on a company car. You also need to reckon up how much it costs to buy and run a private car which you can also use for work and how much your employer will contribute to help you.
Obvious costs of private motoring include depreciation, ie cost price less current resale value, on the value of the vehicle you purchase; and interest on any money you borrow or the interest you give up by using your own money to buy the vehicle.
They also include the cost (and hassle) of replacing items such as tyres, the MOT, insurance, fuel, oil, servicing, the tax disc, and membership of a breakdown service.
In the table we have estimated the annual costs for an employee who owns a BMW car (series 520) that is occasionally used for business purposes as pounds 9,866. We have assumed it is resold after two years for pounds 16,000, the average annual mileage is 12,000, of which business use is 1,600. The car is bought with a personal loan of pounds 20,000, estimated to cost pounds 4,000 over a two-year period. Fuel costs average 60p per litre and the car does 30 miles per gallon. Insurance is estimated at pounds 400 per annum. Servicing costs are estimated at 7p per mile. Against this the employer pays Fixed Profit Car Scheme mileage allowance of 61p per mile.
Of course your employer may offer extra salary, business mileage payments or a loan to buy a private car. All of these have tax implications, however, and need to be structured in the most tax efficient way.
A survey of 41 random companies showed that cash alternatives varied according to the size of the company and their motives in offering a cash alternative. Larger companies paid between pounds 8,290 and pounds 11,166. Medium companies offered pounds 5,820-pounds 9,600, and smaller companies even less, between pounds 4,200 and pounds 8,968.
As our table shows, 45-50 per cent of the capital cost is required so the employee isno worse off. Any rates below that show the varying degrees of determination by the company to encourage the cash option.
The choice very much depends on the assumptions you have made regarding the level of business mileage which you expect to drive, the level of private mileage; and the effect of buying a slightly cheaper model or older car if you provide your own car.
Christine Murphy is a tax specialist at Coopers & Lybrand (01895 273333).