Ask the expert

I’m going to make a few assumptions here, but the short answer is "yes".

In all likelihood the perk cars are for the directors of the company and will be executive vehicles.

Business mileage is negligible; repaid at HMRC Advisory Fuel Rates where it occurs, and total mileage will probably not exceed 20,000 miles per annum.

The key here is to assess the costs of the company cars (not just the rentals) and weigh these against the cash equivalent that would have to be paid to keep the directors "salary neutral".

For the sake of the exercise we’ll look at a car around the £35,000 price mark with average emissions for this class of 172g/km.

Contract hire rentals including maintenance (36-month con-tract) would amount to around £8,100 but you have to add employers NI on the benefit (CCT) of £1,100, Corporation Tax disallowance of £560, disallowed VAT of £615 and other costs such as Insurance and incidentals.

Although this lot adds up to a significant £11,000 per annum (from April), it is actually cheaper for the business than paying more salary to the director.

For the same car, the director would have to receive a net allowance of £7,800 (after taking into account the CCT no longer payable).

Grossing this up would cost the business £5,300 for the director’s tax and NI, plus £1,677 employer’s NI, and this would amount to £14,780, an increased cost of £3,780 per annum.
 

Your fleet is certainly big enough to consider alternative funding methods, and an ECO component could very well work if put together properly. I would advise against a complete ECO provision, however, as not all profiles will produce savings and just a few the wrong way can defeat the exercise.

If you really want to make savings, the best bet is to combine company-funded with employee-funded options in one scheme. Although this is more complex to set up, it’s well worth it and builds some “future proofing” into your fleet.

Thorough analysis of your current fleet costs is crucial before you do anything, and you should also consider the affect on employees as, even in these difficult times, morale can mean the difference between success and failure.

HMRC compliance is essential, so you will need to be happy with key elements such as ownership (the car must be owned by the employee from the outset) and AMAP reconciliation. If the offered scheme requires any end-of-year reconciliation, or uses PSA to account for NI, give it a miss.

You will need to consider how your employees will log and validate business mileage, and how much administration you will take on to manage the payroll elements properly.
Finally, communication must be clear and informative so that employees can fully appreciate their options. There’s a lot to think about, but I’ve no doubt you will find this a thoroughly rewarding exercise.
 

You haven’t told me what the specific issues are, but I know of a few schemes where HMRC is concerned either with the manner in which AMAPs (Approved Mileage Allowance Payments) are attributed to business mileage, or where NICs are not correctly accounted for. 

This can happen where there are end-of-year mileage reconciliations, and especially where there are unused AMAPs or where too many have been paid as a result of estimating business mileage. These can be fixed by properly recording business mileage and paying AMAPs monthly as they accrue. The new financial year is ideal for implementing this change. 

If the issues are any deeper, perhaps relating to the funding or ownership of the ECO cars, or where a benefit in kind may be attributed, then I suggest you obtain independent professional advice.

There were many different ECO schemes four years ago. Even some of the most popular have encountered problems, mainly as a result of the HMRC’s focus on tax avoidance schemes.

I appreciate your concern, but this may actually be a great opportunity for you to look at your car benefit provision afresh, and maybe consider mixing ECO with company cars for a really cost-efficient solution.

The current emissions-based tax regime won’t last forever, but while it does it is possible to obtain some real benefits for both the business and employees.

No simple formula, unfortunately, but there are a few rules of thumb that you could apply depending on how you wish to fund cars in future.

If you intend to buy outright, hire purchase or lease purchase them, the new rules will generally increase your post-tax costs if you select anything with emissions over 160g/km, and reduce them if you pick cars emitting fewer than 111g/km.

If you prefer to lease or contract hire your cars, the situation is less clear cut, especially for high-value executive cars, and you could even be better off if these are less than 160g/km. 

Although the leasing funder will have to increase the interest rate by around 1.5 to 2% to offset its own increased post-tax position (as the Capital Allowances available are substantially reduced for the leasing period), the Expensive Car Leasing Disallowance (cars over £12,000) has been replaced by a flat 15% of the finance rental for cars emitting over 160g/km and no disallowance for greener cars. 

Some funders have yet to differentiate rates for cars above and below 160g/km. I suspect this situation to be transitory, though, and as soon as the funding market becomes more active there will be a clear difference. The best advice I can give you today is to pick the best marques you can afford, and ideally stay below 160g/km and better still below 110g/km. 

Contact:  jim.salkeld@opticar.co.uk
www.opticar.co.uk

Vans are not subject to the same rules as cars, so the CO2 rating is not something you need to be concerned about – at least not in terms of taxation. 

The current flat benefit-in- kind (BIK) charge of £3,000 is equivalent to a diesel car costing £15,000 with emissions in 2009/10 of 145g/km, and only applies if the employee uses the van for private purposes.

I can’t foresee much change in this area other than to increase the charge, and perhaps designate twin-cab pickups as cars instead of CVs. I don’t know how you fund your company cars and you may already include some employee-funded options.

If you do then you will be in a better position when the company car tax (CCT) regime inevitably changes to something other than just emissions-based. I have had no indication that any change is imminent, but the fact is that the Exchequer revenue from CCT is diminishing rapidly as a result of reducing emissions.

I would also not be surprised to see some form of road use taxation for cars and vans, to attack driven emissions more effectively. My advice is try to build a flexible fleet that includes company cars, ECO and cash allowances, so you won’t have to rip your fleet policy up when any changes are announced.

Contact: jim.salkeld@opticar.co.uk or go to www.opticar.co.uk