Budget NI move to cost fleets £68m
CHANGES to National Insurance (NI) rates will hit employers that provide staff with company cars and free fuel for private journeys, according to Alastair Kendrick, director of the global employment solutions practice at Ernst & Young.
He estimates that the one percentage point rise in Class 1A NI contributions paid by employers on staff benefits could cost UK plc £50 million on company cars and a further £18 million on free fuel.
The higher NI rates will apply from the start of the 2003 financial year, and will see companies pay NI at 12.8% on both salaries and benefits.
Yet if this direct hit to corporate bottom lines is 12 months away, Kendrick warned fleet decision-makers at the Fleet News Budget Briefing that they face immediate, and probably long-running battles over company car taxation as they struggle to correct errors in drivers' tax codes.
Inland Revenue computer errors earlier this year meant hundreds of thousands of company car drivers received incorrect estimates of their bills for the new carbon dioxode-based company car tax.
Thousands more drivers have not submitted CO2 information for their cars, highlighted by a late flood of demand for information from the official CO2 data website run by the Society of Motor Manufacturers and Traders.
The site received 86,300 requests for CO2 data in February, and a staggering 2.7 million requests during March.
'It could be two years before the tax mess is sorted out,' said Kendrick.
'Underpayments are the most worrying, because at some stage drivers are going to have to write a cheque to the Inland Revenue paying the back tax they owe.'
Only in July 2003, when employers file P11d tax returns for their staff, will the Revenue have statutory powers to demand that employers should submit the carbon dioxide emissions of their fleet cars.
The Revenue will then cross-refer P11d data against employee PAYE tax codes to verify that employees have paid the correct amount of tax.
The Inland Revenue believes many company car drivers could receive a tax rebate because they have moved to lower emission cars and not told their tax office.
Lloyds boss in challenge to fleet executives
THE new company car tax system presents an excellent opportunity for employers to make the company car work for them as a human resource tool, according to the UK's largest contract hire company. Less than a week after Lloyds TSB autolease acquired FNVH to leapfrog to the top of the leasing fleet size league table, the company's sales director John Given called on fleet decision- makers to challenge their suppliers to deliver high value, cost- effective company car solutions.
He suggested fleets should play rival contract hire companies off against each other on the quality of advice they offer, in the same way that many firms retain more than one contract hire company to cherry pick the lowest rates on the day.
'Be awkward. Make your contract hire company work for its living,' said Given.
The new company car tax system presents an ideal opportunity for employers to review their fleet strategy, and the disappearance of business mileage tax breaks makes it easier for employees to select 'better' cars at lower cost to themselves and the company.
Given cited the example of three £15,000 cars with roughly similar lease rates - the Audi A2 1.4 TDI, Honda Accord 2.0 VTEC, and the MG TF 1.6 - and very different company car tax bills. The Audi and MG TF, for example, would cost a 22% taxpayer about £40 per month, while the higher emission Accord would drive this up to about £60 per month.
'To pay £10 per week for the pleasure of driving the MG TF is a gift,' he said. 'The trick for fleets is picking 'winners' and making the new company car tax system work as your agent of change.'
For very senior employees, the changes in the benefit-in- kind tax system could see directors better off selecting two company cars and still saving themselves and their firms money.
For example, a 40% tax payer with a £1,000 per month lease allowance could swap the keys of an Audi A8 for both an Audi A6 Avant TDI 2.5 and a MINI Cooper, shaving £160 per month off his or her monthly benefit-in-kind tax bill, and saving the employer £1,800 per year.
The disappearance of business mileage tax breaks also gives fleets the chance to redress the typical mileage profile of contract hire rentals, said Given.
'A company should be using the removal of the mileage thresholds to lower its contract mileages,' he said. 'A fixed mileage is fine for benchmark purposes, but not for costs. Get your contract hire company to recalculate your contracts.'
And wholelife costs remain the essential ingredient of cost-effective fleet solutions, with Given estimating that a typical 100-car fleet could save 10% of its costs or £250,000 over three years by adopting a wholelife cost fleet strategy that includes fuel and insurance (see panel below).
Wholelife cost comparison
Vehicle - Taxable price – Monthly wholelife cost – Monthly contract hire
Rover 75 2.0 Cdt Connoisseur: £20,115 £490 £371
Vauxhall Vectra 2.2 DTi Elite 5dr: £20,215 £540 £407
Ford Mondeo 2.0 Ghia X TDCi 5dr: £20,265 £538 £414
Source: Lloyds TSB autolease
Facing up to a parking lottery
FLEET drivers will face a parking charge lottery if local councils push ahead with proposals to charge companies for providing car parking spaces for staff.
Controversial rules allowing local authorities to introduce workplace parking charges were introduced in the Transport Act 2000, and more than 30 local authorities are looking at introducing the schemes.
But new research carried out by Avis, in association with Fleet News and unveiled at the Budget Briefing, showed employers divided over whether they would pay the tax, or pass the cost on to staff.
The ECO Reader Survey 2002 interviewed 415 fleet decision-makers, with fleets ranging from less than 20 vehicles to more than 1,000, and found that 38% believe their business would pay parking charges for essential business drivers only, while 14% said they would cover the entire cost of the charges. But 48% of respondents said they would simply have to pass the charges on to staff.
Large fleets with more than 1,000 vehicles were most generous, with more than half saying they would pay all the charges.
Professor Peter Cooke, head of the Centre for Automotive Industries Management at The Nottingham Trent University, who was sponsored by Avis Rent a Car to present the results, said: 'What will that mean if different companies adopt different policies?
'What could it mean in areas that have competing local authorities, one with the charge and one without? Charging will have a big impact on employers.'
The survey also revealed what staff would be prepared to pay for a workplace parking space, with 56% unwilling to pay anything, and a further 1% estimating no more than £1 a day.
Respondents were pessimistic about plans to liberate workplace parking spaces, with 44% saying they would not encourage car sharing by providing preferential car parking spaces for staff.
Action plan warning to fleet bosses
FLEETS must develop a plan of action for the next year to deal with Chancellor of the Exchequer Gordon Brown's Budget, the industry has been warned.
Stewart Whyte, managing director of Fleet Audits, said fleet decision-makers should ask and answer the most basic questions every year.
Sponsored by Kwik-Fit Fleet to speak at the Fleet News Budget briefing, Whyte said: 'Ask yourself, 'what is the fleet for?' Ask what other ways you can do business, such as through e-commerce and teleworking to meet different customer demands.'
Organisations that justify the retention of a fleet should then analyse subsequent issues such as the correct replacement cycles and servicing intervals, along with how much of the running of the fleet to outsource.
Whyte warned: 'Bad outsourcing can be a recipe for disaster for any fleet. Overall, you need to assess your appetite for risk in all areas of managing the fleet.
'Fleet decision-makers need to review now, revise their fleet now, plan now and just make sure they manage their fleet.'
He attacked the Government's plans for the new carbon dioxide-based fuel scale charge, claiming it still rewarded those with gas-guzzling cars who covered high mileages, while penalising those in clean cars covering few miles.
'It is just political dogma at its worst and rewards people who behave irresponsibly,' he said.
He also questioned whether the removal of tax breaks for covering high business miles would actually reduce the distance travelled by company cars, as he felt there had been an amount of 'misdeclaration' on mileage return forms, rather than drivers covering unnecessary journeys to qualify for tax breaks.