Small businesses have a lot of financial dependence, which means the slightest mess-ups financially could put them under such a burden that they find it hard to recover.
With that being said, it’s important to take every financial decision seriously and to think carefully about any decision that’s being made. Should your small business invest in company cars? Here’s everything you need to know to make the right decision.
The pros and cons of company cars for startups
There are pros and cons to company cars for a small business or startup. Here are some of the considerations you’ll want to make when it comes to spending money on your business.
Pro – Talent acquisition and retention
With company cars, you may be able to provide an attractive benefit for new talent and keep staff retained within the business for longer.
Con – High upfront costs
While the costs are often predictable once ongoing, you may have to incur quite high upfront costs that can be a substantial investment for small businesses.
Pro – Reduced administrative burden
A company will typically cover costs such as insurance, maintenance, and more, helping to free up employees from administrative tasks and unexpected repair costs.
Con – Ongoing costs and responsibilities
An employer will be responsible for servicing, insurance, maintenance, and even fuel, making it quite an expensive outgoing.
Pro – Access to new vehicles
Employees can benefit from driving new and up-to-date models that have both the latest technology and improved fuel efficiency. From Hyundai cars to something bigger or smaller than these models, there’s a lot of choice in new vehicles.
Tax implications and insurance factors in the UK
It’s worth considering what tax implications and insurance factors might play into your decision when based in the UK.
- Deductible expenses – Lease payments can be used as a tax expense.
- Benefit-in-kind tax – Low-emission and electric vehicles often have lower BIK tax rates.
- Tax complications – Incorrectly planning for company cars can lead to higher tax liabilities.
- Limited private use – Employees will likely pay BIK tax on personal use of a company car.
- Employer national insurance – Employers have to pay NI contributions based on the value of the company car and the fuel it uses.
Alternatives if a full fleet isn’t the right fit
There are alternatives available if a company car isn’t the right fit. These include:
Third-Party Logistics
You could always look to partner with a third-party company to help handle all of your transportation and logistical needs. It’s good to outsource when you want to avoid having to manage it all yourself in-house.
Fleet Rightsizing
Fleet rightsizing is helpful when it comes to alternatives to full fleets. Rightsizing involves taking away any inefficient or specialized vehicles from your inventory.
Leasing or rental programs
Leasing or rental programs might be a more helpful option if you need greater flexibility and lower upfront costs.
Vehicle sharing or rotation
For companies with employees who use vehicles only intermittently, implementing vehicle sharing systems can be more cost-effective.
If you’re looking to invest in company cars, weigh up the pros and cons to find which works for your business.
