Pay and benefits
Car allowance or company car: which leaves you better off
Last updated 16 October 2026
A company car costs you benefit-in-kind tax; a car allowance is taxed as pay but tax-free mileage can follow. How to compare the two in 2026.
Some employers offer a choice: a company car, or a cash car allowance and you drive your own. The tax works very differently, and the answer depends mostly on how far you drive for work and what your own car would cost.
Company car
The employer buys or leases the car and usually pays insurance, servicing and often fuel. You pay tax on the benefit in kind (the value of the perk) each year, through payroll. A €45,000 petrol car in CO2 category C, with 20,000 business kilometres, has a cash equivalent of €10,500.00 in 2026. It costs an employee on €70,000 about €5,482.66 a year in tax. See company car tax.
Cash allowance
A car allowance is ordinary pay, taxed in full. A €9,000 allowance on top of €70,000 adds €4,300.78 to take-home pay. You then buy, insure, fuel and maintain your own car.
What often tips the balance is mileage. When you use your own car for work, your employer can pay you tax-free up to the civil service rates. For 20,000 business kilometres in a car over 1,500cc, that is up to €10,089.40 in 2026, with no tax at all. Commuting to your normal place of work doesn't count.
Putting them side by side
| Company car | Allowance and own car | |
|---|---|---|
| Each year | You pay €5,482.66 in tax on the car | You receive €4,300.78 after tax, plus up to €10,089.40 of tax-free mileage |
| Car costs you pay | Usually none | Buying or financing, insurance, motor tax, fuel, servicing |
If your own car would cost less to own and run than the allowance after tax plus the mileage payments, the allowance wins. If you drive little for work, the mileage payments are small and the company car's lower running costs count for more. An electric company car is also taxed much less.
Work out each side with the company car tax calculator and the mileage calculator. Work out the cost of running your own car with the electric or petrol calculator.
Work it out
- Company car BIK →
- Mileage and subsistence: what's tax-free →
- Electric or petrol: the full cost →
- PCP or HP: check your car finance quotes →
Sources
- Revenue: Private use of employer provided vehicles: how to calculate the taxable benefit (checked 25/10/2026)
- Revenue: Private use of employer provided vehicles: exemptions and reductions (checked 25/10/2026)
- Revenue: Civil service motoring, bicycle and subsistence rates (checked 25/10/2026)
- Revenue: Travel and subsistence: reimbursement rates (tax-free up to civil service rates) (checked 16/10/2026)
General information, not tax advice. HeyPenny is not a tax agent.