Providing a company car to a director can be a practical way to support business travel. It can also give directors a reliable vehicle for meeting clients, visiting sites and attending business events.
However, businesses need to consider more than the cost of the car itself. Company car insurance for directors also needs to reflect how the vehicle is owned, who drives it and how it is used.
Understanding these factors can help your business arrange appropriate business car insurance and avoid gaps in cover.
What is company car insurance for directors?
Company car insurance covers a vehicle provided by a business for use by a director or employee.
The business may own or lease the vehicle, while the director uses it as part of their role. Depending on the arrangement, the director may also have permission to use the car privately.
The exact cover available will depend on the insurer and policy. Businesses should provide accurate information about the vehicle, drivers and intended use when arranging cover.
For example, a director who regularly travels to customer meetings may need cover for business travel. If the director also uses the vehicle for personal journeys, the policy needs to reflect that use.
Can a director drive a company car?
Yes. A company can provide a vehicle to a director as part of their employment.
However, businesses should consider both the insurance and tax implications before providing the car.
HM Revenue & Customs (HMRC) considers a company car available for private use if a director or employee can use it privately. This includes ordinary journeys between home and work.
If a company car is available for private use, the business will generally need to report the benefit to HMRC. The company may also have to pay Class 1A National Insurance on the value of the benefit.
These tax rules are separate from the insurance requirements, but businesses should consider both when providing a company car.
Does a director need separate car insurance?
Usually, a director does not arrange a completely separate personal car insurance policy for a company-owned vehicle.
Instead, the business arranges the appropriate company car insurance or business vehicle insurance for the vehicle.
The insurer will need information about the director and how they will use the car. This can include:
- The director’s driving history
- The vehicle and its value
- Where the vehicle is kept overnight
- The expected annual mileage
- The type of business use
- Whether other people can drive the vehicle
- Whether the director can use the car privately
The business should always provide accurate information. If the actual use of the vehicle differs significantly from the information provided to the insurer, it could affect a future claim.
What type of business use does a director need?
The correct level of business use depends on what the director does with the vehicle.
For example, a director may use their car to travel between different business premises, attend customer meetings or visit suppliers. These journeys can fall under business travel.
However, ordinary commuting is treated as private use for company car tax purposes.
Insurance policies can use different definitions and classes of business use, so businesses should not assume that a particular type of journey automatically falls within their existing cover.
If a director regularly travels for work, explain their typical journeys to the insurer or broker before arranging the policy.
What happens if the director uses the car privately?
A director may be able to use a company car for private journeys, depending on the company’s rules and insurance policy.
However, private use can affect the tax treatment of the vehicle.
HMRC states that private use includes journeys between an employee’s home and their normal workplace. Where a company car is available for private use, the employer generally needs to report the benefit.
Businesses should therefore consider both questions separately:
Is the director insured to use the vehicle privately?
And:
What are the tax implications of allowing that private use?
Getting the insurance right does not remove the need to deal with the relevant tax reporting.
Can other employees drive a director’s company car?
That depends on the insurance policy and the company’s arrangements.
If another employee needs to drive the vehicle, the business should check that the policy allows them to do so before they get behind the wheel.
This matters particularly when a director’s company car occasionally gets used by colleagues for business journeys.
Do not assume that a company car policy automatically covers every employee. The business should check the permitted drivers and any restrictions with its insurer or broker.
Company car insurance for directors vs fleet insurance
A business with one company car may arrange cover for that individual vehicle.
Businesses with several vehicles could also consider fleet insurance. Fleet policies can allow businesses to insure multiple vehicles under one policy, although the suitability of fleet insurance depends on the business, its vehicles and its insurance requirements.
For example, a company with several directors’ cars, vans and other business vehicles may find it useful to discuss fleet insurance with a commercial insurance broker.
The right option depends on the business’s circumstances rather than simply the number of vehicles it owns.
How can businesses reduce company car insurance costs?
There is no guaranteed way to reduce a company’s insurance premium. Insurers assess risk using information about the business, its vehicles and its drivers.
However, businesses can help insurers understand their risk by providing accurate information.
It can also help to:
- Keep accurate driver records
- Review who has access to company vehicles
- Make sure vehicles receive appropriate maintenance
- Review vehicle usage regularly
- Tell the insurer when circumstances change
- Compare suitable business vehicle insurance options
A cheaper policy is not necessarily better if it does not provide the cover the business needs.
Choosing company car insurance for a director
A company car can provide a valuable benefit for a director, but businesses need to consider the full picture.
Start by establishing how the director will use the vehicle. Then consider who will drive it, where it will be kept and whether private use is permitted.
Finally, speak to an insurer or commercial insurance broker about the appropriate company car insurance for directors.
Taking these steps can help your business arrange cover that reflects how the vehicle is actually used, while also keeping insurance and tax considerations separate and clear.
