Employment contract with a company car

A company car is a contractual benefit, a taxable one, a vehicle the employer insures and the employee may damage, and an asset that has to come back when the employment ends. The contract has to grant the benefit on the terms of a policy the employer can update, allocate the tax and the fuel, make the licence and the checks conditions, deal with fines and damage within the deductions law, reserve the right to change or withdraw the car when the role changes, and say what happens to it on notice and on leaving. For £595, fixed, with delivery in five working days, I draft the contract for the employer as a template that can be reused for the grade.

Who this is for

Employers in England and Wales providing company cars or car allowances to sales staff, field staff, managers and directors, and employers whose car arrangements have never been written down.

What matters in a company car clause

The car as a benefit and the policy that governs it

The contract should state that the employee is provided with a car of a stated category (or an allowance of a stated amount instead), subject to the employer's company car policy as amended from time to time, with the policy governing the choice, the replacement cycle, servicing, maintenance, tyres, cleaning, breakdown cover and the employee's obligations in using it; putting the detail in a policy the employer can update, with the entitlement in the contract, avoids a contract that fixes the make of car for the length of the employment.

Private use, fuel and the tax the employee pays

The contract should say whether private use is permitted and by whom (the employee, a named spouse or partner where the insurance covers them), whether the employer provides fuel for private use or the employee reimburses it, and that the car and any fuel are benefits in kind taxed on the employee under Chapter 6 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 with the employer reporting them and paying the employer's national insurance, with the accountants confirming the treatment; an employee who did not realise the car was taxable is a grievance the contract should prevent by saying so.

Licence, insurance and the employer's duties

The contract should make holding a valid licence a condition of the benefit, require the employee to produce it for checking at stated intervals and to report points, convictions, disqualifications and medical conditions affecting driving, state that the employer insures the car under section 143 of the Road Traffic Act 1988 for the uses permitted and that the employee must comply with the policy conditions, and require compliance with the driving for work policy under the Health and Safety at Work etc. Act 1974 (journey planning, rest, mobile phones, vehicle checks); a company car driven by someone whose licence has lapsed is uninsured, and the checks are what protect the employer.

Fines, damage and the deductions law

Fines and penalties incurred by the employee are the employee's, and the contract should say that the employer will identify the driver as the law requires and may recover any fine or charge it pays; damage to the car caused by the employee's negligence may be recovered only with a contractual term or written consent under section 13 of the Employment Rights Act 1996, limited to the insurance excess per incident, and the contract should contain the consent and the limit, with the employee's obligation to report accidents and to cooperate with claims.

Changing or withdrawing the car

The contract should reserve the employer's right to change the car, the category or the policy, to withdraw the car or substitute an allowance where the employee's role no longer requires driving, where the employee loses their licence, where the employee is on long-term absence, or where the employer changes its fleet policy, with the employee's position on withdrawal stated (an allowance, or nothing where the car was for business use); a car granted without a withdrawal clause is a contractual benefit the employer cannot remove without consent or a breach.

The car on notice, garden leave and leaving

The contract should say whether the employee keeps the car during notice and garden leave (usually yes, as a contractual benefit), what happens on pay in lieu of notice (the value of the benefit paid, or the car retained for the period), the obligation to return the car, keys, documents and equipment on the termination date in good condition, the employer's right to recover the car where it is not returned, and the treatment of the car if the employee is suspended; the written particulars under section 1 of the Employment Rights Act 1996 should refer to the car as a benefit, and the policy should sit with the handbook.

What it costs

Employment contract, £595. One template you can reuse for a grade of staff. Five working days.

Staff handbook and core policies, £995. Five working days.

Buying online forms the engagement on payment. The scope is what the employment contracts and handbooks page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke contract drafted for how you employ people
• Restrictive covenants drafted at a scope a court will uphold
• Confidentiality and intellectual property provisions that put ownership where it belongs
• The statutory particulars, so the document does the job section 1 of the Employment Rights Act 1996 requires it to do
• Flexibility clauses where you genuinely need them, drafted to survive challenge
• Core policies: disciplinary, grievance, sickness absence, equal opportunities, data protection and, increasingly, AI use
• One round of amendments

What is not included

• Acting for employees
• Employment tribunal representation
• Payroll, pensions auto-enrolment and tax
• Immigration and sponsor licence work
• Day to day HR handling, disciplinaries, grievances and redundancy processes

Questions I am often asked

Can we take the company car away if an employee moves to a desk job?

If the contract reserves the right to withdraw the car where the role no longer requires driving, yes, with the position on an allowance stated. Without the clause, the car is a contractual benefit that needs consent to remove.

Can we deduct the insurance excess from an employee who damaged the car?

With written consent in the contract, limited to the excess per incident and never below the minimum wage, yes. Without the consent, the deduction is unlawful.

Does the employee keep the car during their notice period?

As a contractual benefit, usually yes, including on garden leave. On pay in lieu of notice the contract says whether the benefit's value is paid or the car retained.

Related guidance and services

• Employment contracts and handbooks, £595, the service this page describes
• Consultancy and contractor agreements, £595
• Settlement agreements for employers, £795
• Employment contract for a driver
• Employment contract for a sales employee on commission

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.