Shiny new car, fully expensed, versus DIY fleet manager with ‘Cash For Car’?
During the sky-high tax regimes of the 1970’s, many people’s perk of choice was the company car and, despite government intervention, the shiny motor is still one of the most popular tools for recruiting and retaining staff. Back then it was simple – why have a pay-rise that gets heavily taxed when you could take a company car, or, in some case a second or third company car for the family?
In the 1990’s, the way cars were taxed as a ‘benefit in kind’ changed. Instead of using mileage as the benchmark, the government turned to a formula which combined the vehicles’ emissions and its list price. This has driven us to the cleaner, efficient engines of today.
There are, in the main, two types of car users in a business: those for whom a car is essential and those for whom it is a perk.
Now, your sales person or field engineer might argue that to pay tax on a vehicle they have no choice about driving is not in their best interests: however, the argument from the fleet side is that ‘essential’ have the ‘benefit’ of a fully expensed vehicle to commute to work, for weekends, for holidays and leisure. Their only liability is the ‘Company Car Tax’. So, let’s minimise the tax liability, select the right vehicles and plan ahead!
Alternatively, lots of firms consider ‘opting out’ or the ‘cash for car’ plans, although they were described recently in Fleet News as a ‘lazy’ option. My view is that the alternative can work when implemented correctly and professionally. However, more often than not, the alternative applied when management views its fleet as ‘a bit of a pain’ and that’s when employees might start to experience problems. In many cases, this process can be the cause of more administrative, ‘Duty of Care’ and reporting problems than are commensurate with providing a company car…
By opting out, your driver would have to pass credit checks, organise insurance, arrange repairs and replace, when they really should be doing the job you pay him or her to do.
As a bit of a petrol head myself, I am likely to select my car on the basis of performance and costs, rather than on the car’s environmental credentials, insurance costs, economy or suitability. As an employer, you must retain some measure of control on who drives what.
By opting out, your driver could end up stuck with a finance agreement for a car they no longer need, should something go wrong at work… More employees than you might imagine would be prepared to pay a little P11d, for the privilege and convenience of having a new, efficient, suitable and full expensed company car.
A tax effective ‘perk’ might be just what it takes for your company to retain those essential employees who don’t necessarily ‘need’ a vehicle for work. Let’s take for example, a valued employee, about to be promoted at their annual review and let’s consider the options available.
A pay rise of £10,000 per annum sounds incredible doesn’t it? But after income tax, NI, student loans repayments and pension contributions, it could nett down, in real terms, to as little as £10 per day. By offering a company car to your superstar instead or a rise, your business avoids the costs incumbent in an increased salary and Class 1a NIC. Your employee may take a pay-freeze or even a cut, to earn the right to drive their first ever brand new car. After all, their only overhead will be the P11d deduction on their payslip…
If this article has got you thinking about the best routes for your business to provide and manage company vehicles, then please call me, Rob Nugent, at Anthony K Associates on 0161 655 3200, for a complimentary review of your current and future requirements.
