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Six key differences between a company car and travel allowance

by , 04 July 2014
If your employees travel all the time for business, you should give them a helping hand in the form of a company car or a travel allowance.

But before you rush into giving your employees either of these, you must consider the pros and cons. They're very different and you have to weigh up which one works better for your company.

Here are six key differences you must consider before you make this decision...

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Here are the differences between company cars and travel allowances

 
 
- Company car
Your business owns the car, but your employee pays tax on his private use of the car.
 
- Travel allowance
Your employee uses his private car and you reimburse his business travel. There's no extra tax on a travel allowance.
 
2. Who decides on the model of the car?
- Company car
You, the business owner, choose the car's make and model
 
- Travel allowance
It's the employee's car and he can choose whatever he likes
 
3. Who pays for fuel, insurance and maintenance?
- Company car
Your business will pay all these costs unless you have a specific agreement otherwise.
 
- Travel allowance
It's your employee's car so he pays for all these costs except for the fuel he uses on business travels.
 
- Company car
This affects the company and you can use this fact to reduce the amount of tax on the car.
 
- Travel allowance
The depreciation of your employee's car affects him.
 
- Company car
This will be of more benefit to your employee if he travels a lot because he won't have to worry about the wear and tear on the car.
 
- Travel allowance
Your employee may have to pay more in maintenance if he uses his own car for business to travel and this won't benefit him.
 
6. The tax on this company benefit 
- Company car
Your employee pays fringe benefit tax of 80% of the cars determined value multiplied by 3.5%.
 
- Travel allowance
Your employee pays tax on 80% of the travel allowance but he can deduct it on his own tax return if he can justify it.
 
 
There you have it: Consider these six key differences to help you decide which option is better for your company.
 
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