The company car is a vehicle paid for by an organization for an employee to conduct business on its behalf. Sometimes the employee is permitted to use the vehicle for personal purposes. The company car may be furnished as a benefit of the position or because the job requires excessive travel.
There are advantages and disadvantages to company cars from the business owner’s and employee’s perspective. Understanding the pros and cons of offering a company car will better ensure informed decision-making on the subject.
Cons for the business owner
- The purchase of a company vehicle is a costly up-front investment for a business owner.
- Attending to the taxes associated with a company vehicle can be complex and expensive in the end.
- Smaller businesses may have limited purchase options. If the company car does not meet employee standards – they may prefer to drive their own vehicles instead.
- Company vehicles are often expensive to maintain. Costs for maintenance and repairs, insurance and service can negatively impact the cash flow of small and medium-sized businesses.
- Speaking of insurance – the liability that accompanies a company owned car can be problematic. An employee-caused accident opens the business owner up to greater potential for legal ramifications. When an employee is given permission to drive the vehicle for personal use this further increases liability to the business owner.
- There is a certain amount of time associated with record-keeping that translates to a business expense. It is important to determine these costs when making the decision to purchase a company car. Business owners should be careful to search a vin number as part of their record-keeping processes. It is important to ensure that the vin numbers for company-vehicles are unencumbered.
Pros for the business owner
- The vehicle is a company asset. The benefit to the business owner for providing a company vehicle is the cost savings that accrue from tax deductions. The company can recoup costs through tax deductions for ownership of the vehicle as well as for the travel time and distance it is driven while attending to company business.
- The business owner is able to deduct depreciation expenses of the vehicle from the company taxes corresponding to its cataloged business use. Maintaining accurate records is essential to ensuring maximum tax returns for its use.
- The business owner is able to deduct auto expenses of the vehicle from company taxes. This would include such costs as tires, gasoline and maintenance and upkeep.
- If the vehicle is financed the interest on the car loan is deductible. It is considered a necessary business expense.
- The cost of insurance for a company owned car is often less than personal vehicle insurance because special rates are offered and applied.
- Company vehicles have the potential to be branded. When an employee drives the vehicle it results in free advertising.
- Providing a company vehicle better ensures your control over your corporate image. An employee may not be able to afford the type of vehicle that would represent your company in the best light.
- Company cars fall squarely under the heading of ‘company perk’ or ‘benefit’. It can be an excellent enticement for finding and hiring the best employees.
Some alternatives
- The business owner may decide to lease a vehicle for the employee versus purchasing. There are restrictions that must be taken into consideration prior to choosing this option.
- Employee-owned vehicles that are used to conduct company business could be an alternative.
- Recent changes to the IRS schedules regarding the employee’s use of his or her own personal vehicle for business purposes should be examined thoroughly. Changes to these tax laws are important to informing decision making.
As this article reveals, purchasing a company-owned car for employees to conduct business can be complicated. Consider all the alternatives before making a decision and be sure that you do a vehicle number search – retaining this information for future reference.
