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ADVANTAGES

DISADVANTAGES

EMPLOYEE

1. Fully maintained vehicle without the problems associated with ownership.

1. May have to pay more tax.

2. Only cash outflow is fringe benefit tax payable on a monthly basis.

2. No asset being acquired.

3. Can upgrade to a better car (if allowed by the company) by contributing to the cost by sacrificing a bonus or salary increment.

3. No ability to trade vehicle at a profit.

4. Car replaced regularly in terms of the employer's policy.

4. Vehicle selection often restricted.

5. Allowed to purchase the car at replacement at a preferential price. This benefit is taxable.

5. Company replacement policy sometimes unusually long.

6. Fuel is usually paid by the company.

7. Not responsible for maintaining a log book to justify usage.

8. Fixed 2.5% PAYE calculation.

EMPLOYER

1. Lower cost as buying power will result in bigger discounts on vehicles and parts and lower finance charges.

1. Burden of administration and upkeep – petrol and maintenance.

2. Company vehicles (transport) operate to required standards.

2. Replacement of vehicles increasingly costly and requiring additional investment or borrowings.

3. Can use Maintenance Plans to reduce costs.

3. Accurate budgeting difficult.

4. Ability to self insure fleet in order to reduce costs.

4. Certain employees tend not to look after the vehicles as well as they may look after their own.

4. Good control on fuel and tyre costs.

5. Have an asset to dispose of or reallocate when an employee leaves.

6. Good depreciation control.

7. VAT inputs claimable on maintenance costs and insurance.

ADVANTAGES

DISADVANTAGES

EMPLOYEE

1. May choose the vehicle he wants and can afford.

1. Assumes the full risk of car ownership ie. repairs, accidents and resale.

2. He acquires ownership and has the benefit of resale value (profit) without tax provided the original transaction was structured correctly.

2. May find difficulty in obtaining finance or has to pay high interest rates unless group scheme implemented.

3. Only the unexpended part of the allowance is taxable.

3. Has to administer his allowance with care and keep accurate record of kilometres travelled and expenses.

4. Expenditure of allowance is under his control.

4. Employer may tend to "save" by paying an allowance which could be less than the actual cost of maintaining the vehicle.

5. Could have difficulty in disposing of vehicle when wishing to move from the company paying an allowance to one giving a company car.

6. Must drive at least 2800 kms to equate company car tax deduction.

7. Private use fixed at 18000kms pa and business use at 14000kms pa.

8. Cash flow reduced due to PAYE on 60% of allowance.

EMPLOYER

1. No capital required to finance vehicles.

1. Lose control over quality of transport.

2. Vehicles can be financed off balance sheet.

2. costs are not less than providing company cars.

3. The allowance may be fixed annually permitting more accurate budgeting. For example, an allowance for fixed costs with your company providing petrol and a maintenance plan.

3. Many personnel problems emerge because poor cash management related to maintenance tax.

4. The administrative burden is reduced and the maintenance burden eliminated.

4. Can lose control over kilometres driven and fuel costs.

5. Company image can be adversely affected.

6. If optional, administration is actually increased.

7. Not easy to set acceptable allowances. They also need to be regularly reviewed.

8. New Perks tax legislation will increase administration.

9. No VAT inputs claimable on maintenance and insurance if full allowance is paid direct to employee.