Don't be over-generous

Chris Chandler, principal consultant at Lex Autolease, says: “If a lot of employees are taking the cash allowance it is because it is over-generous and profitable for them.”

A common error among employers, he says, is to link cash allowances to a pay increase when any review of the sum paid should be linked to a review of company car scheme entitlement.

“Cash allowances should be linked to the benefit of the company car and not to wage inflation,” says Chandler.

“We would recommend that the company car scheme is reviewed annually and cash allowance amounts looked at simultaneously.

“We have saved companies money by increasing the desirability of the company car scheme by encouraging employees into low benefit-in-kind tax cars, which can work out cheaper for an employer to provide than a generous cash allowance.”

And if employers want to maintain or increase cash allowance take-up they could, says Kendrick, make the existing company car scheme less desirable by reducing entitlement value and extending replacement cycles.

Case study: KPMG

KPMG’s reputation as an employer of choice means a competitive, employee-focused benefits package is vital to attract high-calibre talent and reward employees for achievements.

The tax and professional services advisers already offered company car and cash allowance schemes and last year, as part of its benefits package, launched CarFlex.

This gives all employees the opportunity to sacrifice part of their salary and/or cash allow-ance for a fully maintained and insured company provided car.

Harvey Perkins, KPMG tax partner, says: “This involved integrating the existing company car scheme and transforming it into one firm-wide benefit offering.

"Any member of KPMG can access a low-emission (only cars under 140g/km are available) CarFlex vehicle from as little as £175 a month net.

“Many people who opted out of a company car and took a cash option have now opted into CarFlex because they see that they can save themselves money compared with the cost of acquiring a car privately.”

Indeed, two employees in KPMG’s own car consulting team have used their cash allowance to fund a car through CarFlex.

The scheme was already a hit pre-launch, with more than 3,000 pre-registering.

Following the launch, KPMG reached the milestone of more than 600 vehicles ordered in less than six months.

Perkins adds: “The major driver was not money but to make KPMG more attractive as an employer to existing staff and new recruits in a very competitive market.”