As with most choices, which option is best for you depends on your personal circumstances, financial outlook and business requirements. For most people and businesses the preferred route tends to be the one that saves the most money.
A car allowance is a good option if you already own a car and don’t need to upgrade or cover the cost of public transport, have a specific vehicle in mind you’d like to buy, or want an asset that you can sell at a later date. However, if you’re a higher rate taxpayer, you could end up with an amount of cash that’s significantly lower than the value of a company car.
To work out whether a company car or car allowance is the most cost effective option for you, take the monthly allowance you’d be entitled to and deduct any tax and national insurance contributions. If you’re sure that the money you’d have left over would cover your remaining motoring costs like insurance, repairs and depreciation, then a cash alternative could be beneficial. If not, you may be better off with a company car.