The quiet return of the company car. The workplace perk that boosts retention
HMRC’s latest benefit-in-kind figures record 920,000 employees taxed on a company car in 2024/25, up 80,000 in a single year and within sight of the 2016 peak, with fully electric cars now accounting for 51% of them.
For the many businesses that dropped the company car option in favour of a cash allowance over the past decade, the figures deserve a second look.
Clearly, the company car has returned, this time in electric form through salary sacrifice, and employees are choosing them in numbers. The BVRLA reports the funding model is up 165% year-on-year and lower-rate taxpayers are joining as monthly costs fall.
At a time when household budgets are stretched, this puts a new and more energy-efficient vehicle within reach, at a fraction of the usual cost, and at no cost or risk to the employer.
Cash allowances took over just as company car tax hit 37%, and the 2017 rules on optional remuneration removed the last advantage of the traditional scheme. The allowance has barely changed since, while the alternative has changed beyond recognition.
Consider a fairly common scenario. An executive joined a business in 2018 and was offered the choice every senior hire typically got at the time: a car from the approved company list, or £600 a month in cash.
She opted for the cash because the tax on a company car had become eye-watering. Eight years on, she is still driving the same car, the allowance has not moved, and a friend at another firm has just picked up a brand new electric car through her employer for less than the executive pays each month in fuel.
At least a fifth of EVs now arrive through an employer scheme
The growth in the HMRC figures owes nothing to businesses dusting off the old executive car list. It comes from employees choosing EVs and paying for them out of their own gross pay, with one fleet consultancy estimating that between a fifth and a quarter of new battery electric registrations now arrive through an employer scheme.
That growth is concentrated in the businesses that offer the option, and many still do not, which leaves their employees watching colleagues and friends elsewhere drive away in cars they cannot match on an allowance.
For the employee, the case is simple. Every pound of a cash allowance is taxed as income, so the executive loses 40% before the money reaches her driveway, whereas an electric car provided through salary sacrifice comes out of gross pay, saving her income tax and national insurance on the whole lease cost, and carries a benefit-in-kind rate of 4% in 2026/27, rising by a point a year, against a maximum of 37% for a high-emission petrol car.
The same new car costs her a fraction of what the allowance route would. The monthly figure includes insurance, maintenance, and breakdown cover in most schemes, and the BVRLA reports a rise in lower-rate taxpayers joining as monthly costs fall, so the warehouse supervisor who was never offered anything at all can now have a new or used electric car for the first time.
For the business, the case is even stronger. The employer pays national insurance at 15% on every pound of allowance, for no benefit of record and no say in what is driven, whereas salary sacrifice reduces the employer’s national insurance bill on the sacrificed amount, requires nothing from the reward budget, and gives the business a benefit that employees talk about in the way they once talked about the company car.
An employee benefit that improves retention
In a year of rising payroll costs, it is one of the few benefits that improves retention while cutting costs. And, the fear that once stopped employers – an early termination bill if an employee leaves mid-lease – is now covered by protection products that did not exist a few years ago.
The allowance also carries a risk that never appears in the reward budget. Ask who insured the car a regional manager drove to a client meeting last Tuesday, whether it has a valid MOT, and whether anyone has checked the tyres, and the honest answer is usually a pause.
An employee who spends an allowance on their own car creates a grey fleet vehicle, and the employer’s duty of care under the Health and Safety at Work Act still applies to every business mile driven in it, yet most businesses inherited these arrangements rather than designed them and few have looked at them since.
It’s a blended landscape for car allowance and salary sacrifice benefits
The arrangement emerging in the businesses I speak to is a blend rather than a return to the past, where the cash allowance stays for those who want it, the job-need fleet stays for those who need it, and a car salary sacrifice scheme sits alongside both, open to the whole workforce rather than a senior grade.
Upcoming tax changes to consider
There are three upcoming dates that need to be considered as well.
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From 6 October 2026, employee car ownership schemes, the arrangements that transferred the car to the employee on day one to sidestep benefit-in-kind, fall inside the company car tax rules, with HMRC estimating around 76,000 employees at 1,900 companies are affected
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From April 2027, the electric benefit-in-kind rate rises to 5%, still a fraction of the petrol rate
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From April 2029, national insurance relief on pension salary sacrifice is capped at £2,000 per employee, which leaves cars and charging among the few salary sacrifice benefits where the full saving survives.
It is estimated that two in three of the UK’s largest fleets still pay a cash allowance, one in ten fewer than five years ago, and nearly half of the employers paying one have no idea what the money is actually spent on.
The allowance was the right answer in 2017, but it has clearly shifted now. A short review of who holds an allowance, what it really costs once employer national insurance is added, and what the same money would provide the same people through salary sacrifice will show most businesses where they stand.
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