The bottom line is that it’s partially about tax rules, but it’s also about how generous the cash is. If someone offers you, say, £10k pa rather than a VW Golf then probably just take it.

However, if the cash allowance has been set appropriately (i.e. cost neutral to the employer) then cash will typically be more cost effective for the employee than a traditional petrol or diesel company car. This is because the tax charge on the car is likely to be too high (it’s possible to get an effective tax rate in excess of 200%).

Against a Plug in hybrid (a “PHEV”, typically that records under 51g/km of CO2) or a full electric car, this position will be reversed. The tax is so good on the company car that the cash will be the expensive option.

In considering cash it’s important to factor in the tax you’d save by not having the company car (which will either be far too high or too low, there’s no happy medium). You should also consider mileage allowance particularly if annual business miles are high. This is because of Approved Mileage Allowance Payments (AMAP) of 45p a mile up to 10,000 miles in a year, and 25p thereafter. Do 1,000 miles in a month in your own car and you could be paid £450 and that’s tax and NIC free. Many employer’s know about AMAP but choose to just pay a fuel reimbursement only (9-12p typically pm) but, when that happens, the employee can claim tax relief for the AMAP they didn’t receive.

So as an example, Sue gets a cash amount of £4,000 plus 10p a mile or can have a £25,000 1.6D Skoda Octavia (CO2% 34). Sue pays tax at 40% and does 10,000 business smiles a year.

If Sue takes the car she pays £283 pcm (£25k x 34% x 40% /12).

If Sue takes the cash she gets £193 a month net (£4,000 x 58%) and AMAP tax relief of £117 (45p less 10p for fuel x 10,000 x 40%/12). Which is £310 plus the £283 saved by not having a company car. In total £593 to lease (or PCP or put towards a loan) to buy, maintain and insure a new car. That’s decent Mercedes E class or BMW 5 series territory.