Company Cars – What is the Impact of Recent Budget Changes?

In the 2007 Budget, the chancellor continues to encourage environmentally friendly travel, with car benefit tax, vehicle excise duty, private fuel and capital allowances all now based on CO2 emissions.

Car benefit tax may seem to be the employee’s issue, but the company may also choke on the national insurance charges due on a high-polluting car choice. As a result, many companies are reviewing their car policies. According to a survey produced by PricewaterhouseCoopers Monks, nearly a quarter of all fleets have a green transport policy in place and 27% restrict car choice to diesel engines only. Almost half of the companies surveyed encourage employees to cycle to work, with many providing showers and secure bike parking. Car manufacturers have responded to the changing market by producing more fuel efficient cars, and even lease companies are getting into the act by offering carbon neutral driving schemes.

Despite the UK’s more onerous tax regime, company cars are still more prevalent in the UK than mainland Europe. But the situation is changing. According to the HMRC’s own review published on budget day, there has been a reduction of about 400,000 company cars since 1999.

In a recent survey run by Employee Benefits magazine, 78% of companies now offer a cash allowance alternative, with 47% of the companies surveyed hoping to reduce the size of their company car fleet. However, cash allowances can leave organisations open to duty-of-care claims if employees use the cash to purchase an unsafe car for business use.

Tips: What Factors do You need to Consider when Offering a Cash Allowance Alternative?

Have a clear strategy. Be clear about what you want to achieve. Is your company trying to save money, offer more choice, or simplify administration?

Understand your fleet. Gather data on numbers of car users, their level in your organisation and their business mileage. Add up all the associated costs of providing company cars. Note: there may be hidden costs in management and administration time.

Decide on eligibility. Many companies do not offer cash alternatives to employees with very high business mileage, simply because it can be cheaper to provide the car; it also gives you more control as the employer.

Decide on level of choice. Can your employee choose between a car and an allowance, or will allowances be all that are offered?

Calculate the allowance. You may wish to offer an allowance that is slightly higher than the lease budget, as your employee will take on their own risk and insurance and the additional cost will be offset by lower administration and management time. However, it may be complicated to administer. It’s a good idea to refer to market data on allowances to ensure you are competitive.

Recognise there will be winners and losers. Whether one of your employees is better off with a car or cash is dependent on many variables, such as type of car, business/private mileage, and their personal tax position. To some employees, a company car is a status symbol, beyond its simple financial value, though it needs to align to your organisational culture and values.

Spend time on communication. A good communication plan is the key to success. You can promote a cash allowance as the ultimate flexible benefit.

Limit the risks. Duty of care for the employer when employees travel on business does not go away if you don’t give them company cars. Consider establishing a proper policy for business travel and create an agreement for your employees to sign on grant of the allowance.

Please note that this advice is provided as guidance only. If you need specific advice relating to your requirements, please call Reward First on + 44 (0) 1367 710 618.

Website of the Month

Each month, we’ll give a quick round up of a website and for April we take a look at the Energy Saving Trust website which offers Green Fleet Reviews and a range of initiatives to help companies reduce environmental impact and to lower running costs of company vehicles. The free service is available to companies with over 50 vehicles in England. Around 100 companies have already benefited from this service over the past year including BSkyB and Puma UK.

Just News

Authorised mileage allowance payments (Amaps) up for review. Following the Chancellor’s budget speech last month, Amaps are to be reviewed. It is expected that the rates and thresholds of Amaps will be altered to encourage better use of environment friendly business travel. Changes were also made on vehicle excise duty to reduce the rate for low-carbon cars (band B) while raising the raise for the most polluting cars over the next two years.

New Zealand introduces scheme to help employees save for retirement. July 2007 sees the implementation of the KiwiSaver Act retirement scheme, a voluntary workplace based initiative to help employees save for retirement. New employees will be automatically enrolled, with an opt-out option in the first 6 weeks. This scheme runs alongside New Zealand’s existing tax-funded pension and contributions which must be 4% or 8% of gross salary. It is anticipated that employers may select to contribute to this though it is not mandatory.

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