Are Company Cars a Worthy Investment?

Car

Car plans are benefits that can be enticing to some employees. But do you or are you capable of offering this incentive? Here are a few pointers you need to consider before you make that major financial decision for your business.

Why You Would Need a Company Vehicle

Consider your business needs as well as the nature of your business. If your employees (or even you) require a lot of face-to-face interactions with your clients, then it might be a good idea to look into car plans for them.

However, if the nature of your business is such that most people just stay and work in the office, it might not be worth investing in car benefits packages for a majority of your workforce. Perhaps it might be prudent to offer it to employees who are higher up the ranks.

Is it Tax Deductible?

As a business owner, naturally the first thing you’d like to know is how would this affect your finances. Sure, you understand that it’s a business expense, but does it come with perks and benefits? It depends on whether it’s a company-owned vehicle or an employee-owned car.

  • Company Owned

If you go this route, you can claim depreciation expenses as soon as you start using the vehicle for company use. You can also deduct certain expenses like maintenance, gas, and tire replacements.

Insurance could also be cheaper for a company-owned vehicle and if it gets into an accident, the driver’s liability and personal insurance rates are minimized. However, do note that you have to be meticulous about enforcing the vehicle’s use for business-related purposes only and document each and every time someone uses it for personal use.

  • Employee Owned

The employee can deduct car expenses through itemized deductions if it exceeds 2% of their gross income. The interest on the car is not deductible, though, unless it came from a home equity loan. Your employee might also have to take on a commercial use auto insurance policy since their personal insurance might not cover all liabilities incurred from a vehicle meant for company use.

Advantages of Having Company Cars

Blue Car

There are quite a few advantages to having company cars. For example, you can use it as part of a salary sacrifice scheme where your employees could agree to a lesser salary in exchange for a non-monetary benefit (in this case, a company vehicle). You can also use the vehicle as free publicity for the company by fitting it with decals of your business name or logo.

You could also solve any transportation issues for employees that live far away from your office or for those who often need to meet with clients face-to-face.

The Downside of Investing in Company Cars

It may not seem like much but regular vehicle maintenance expenses can add up. And this becomes even more pronounced when you have to deal with high-end vehicles. Your company executives have to keep up an image, and they would naturally gravitate towards cars that have more prestige. You could go mid-range and buy vehicles like a Subaru, but you must still remember to do Subaru factory-recommended maintenance on it regularly.

It can also become an unnecessary additional expense when you provide vehicles for multiple people in your workforce. In situations like this, encourage your employees to carpool instead or simply offer transportation allowances for their commute to work and client meetings.

You are the best judge of whether offering a company car to your employees will be in your and their best interest. Before you immediately turn down the idea, consider the ideas presented above. You might decide that a hybrid scheme might work for you.

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