Advice

When a £500/month car allowance ends up costing you more

If you’re in a national role and doing 20,000+ miles a year, a £500 monthly car allowance might sound decent – until you realise it’s before tax, doesn’t touch insurance or maintenance, and leaves you personally liable for wear, tear and depreciation. 

That figure can vanish fast. Especially if you’re expected to show up to client meetings in something presentable, reliable, and fuel-efficient. 

This sort of allowance might work if you’re covering a small patch or have a company car hanging over from a previous role. But for new starters, or anyone who’s had to source a car from scratch, the maths doesn’t add up. 

Electric company cars used to be the answer… 

With 2% BIK, going electric made total sense. But from 2025, that tax rate starts creeping up. It’ll still be lower than petrol or diesel, but not by the margins we’ve been used to. 

Hybrids are also being squeezed. Unless you’ve got a long electric-only range, the tax perks vanish – and so does the fuel efficiency once you’re hammering up and down the M1. 

So what’s left? Car allowance or salary sacrifice? 

Car allowance gives flexibility. But it’s also a risk. 

Pick the wrong car or leave the job mid-lease and you’re the one left footing the bill. Not to mention the allowance being taxed before it even hits your bank. Some of the numbers being shared by senior hires recently are eye-watering: 

  • £500 allowance taxed down to ~£300 
     
  • £410/month lease 
     
  • £90/month insurance 
     
  • £50/month servicing 
    = Out of pocket. Every single month. 
     

Salary sacrifice schemes might look better on paper (especially if they include maintenance, insurance and early termination cover), but they’re often limited to certain employers and models. 

This is a conversation that needs to happen before signing the contract 

Don’t just ask “what’s the car allowance?” Ask: 

  • Will it realistically cover the cost of a reliable, appropriate vehicle? 
     
  • What are the tax implications? 
     
  • Will it tie me into a lease that affects my ability to take my next role? 
     

A badly thought-out allowance doesn’t just chip away at your take-home pay. It can limit your options, tie your hands, and leave you financially worse off – while still expected to show up and deliver across the UK.