Fleet News

Time to walk away from the company car?

ENQUIRIES about employee car ownership schemes are on the increase as the true impact of changes to the company car tax system become apparent to drivers in their monthly pay packets.

A leading fleet tax consultant claims an increasing number of companies are now starting to review their fleet operations in an effort to cut costs – three months after the new emissions-based benefit-in-kind tax system was introduced.

Alastair Kendrick, director of PAYE and NI Solutions at Ernst & Young, is noticing an increase in the number of companies wanting advice on the type of car provision options that are available.

Kendrick said the reasons were threefold:

  • Drivers seeking advice from their employers after opening their April and May pay packets to find they are paying more in tax.
  • Employers wanting professional advice after being approached by a leasing company attempting to sell new products, such as cash for car schemes.
  • Companies seeking major savings in their fleet costs.

    In his experience, it is companies seeking cost savings that generate the most enquiries.

    'The recent company car tax changes provide an ideal platform, or some may say excuse, to introduce any fleet changes. I'm being asked to explain a number of different car provision methods by companies simply wanting to save on their costs,' he said.

    'It appears that finance directors are in cost-saving mode. Many people thought our work on advising companies on car provision would dry up after the April tax changes but that is not the case.'

    He said the issue had caused huge debate within companies as finance directors want to achieve cost savings while human resource executives recognise company car provision as a major way to attract and retain staff.

    'It's a difficult balancing act,' he added.

    The trend of investigating structured car ownership schemes is growing but employers want professional advice as there is a certain element of mistrust and misunderstanding about them, said Kendrick. Such schemes see employees technically own their company cars, thereby avoiding company car tax. The driver funds the car through savings in benefit-in- kind tax, along with a cash allowance from the employer.

    Part or all of the cash allowance can be funded through Inland Revenue Approved Mileage Allowance Payments that create a tax-free and National Insurance-free way of reimbursing employees for driving their own cars on business.

    The supplier behind the scheme can deduct the monthly payments directly from the employee's salary, so credit risk is minimal, helping to keep interest rates at a highly competitive level.

    Employee Car Ownership Programme (ECOP) schemes can provide full service and maintenance cover, and guaranteed buy-backs, so drivers avoid any residual value risk. Corporate insurance cover can continue to apply to these drivers, so long as the full cost of the premium is recharged to each driver.

    'The number of companies actually offering car ownership schemes to their drivers is small,' said Kendrick, 'but interest in finding out more about them is growing.' Many employees who are paying more in tax for their car are seeking to move into bigger vehicles, Kendrick said.

    'Drivers are upsizing in some cases,' he said, 'it's a bit of a last-ditch attempt – they are paying more tax so want a better car saying they'll make their own arrangements when the lease comes to an end.'

    This could explain why prestige marques such as BMW and Audi are among those celebrating sales increases so far this year.

    Interleasing managing director Nick Brownrigg said his own company was seeing an increase in the number of companies enquiring about its structured employee car ownership scheme, called Alto.

    He said: 'We have noticed an increasing amount of existing customers and consultancy firms acting on the behalf of potential new customers talking to us about Alto. I'm sure changes to company car tax is a reason for this. Currently, Alto forms about 30% of our multi-marque business. It offers savings to both employer and driver and it's a type of scheme that more and more employers are looking at.'

    Leasing company Alphabet estimates that about 50% of its clients have signed up to its 'off-the-shelf' employee car ownership plan, which it heavily promotes to customers.

    However, managing director Mike Baldry said the company was not noticing a surge of customers reviewing their fleet policies.

    'Companies are always reviewing their costs and while it is always busy for us I wouldn't say it has become any busier since April.'

    He said drivers who are now in better cars are likely to be paying for them themselves through a car ownership scheme and not because their employers are offering them a bigger choice list.

    In the experience of Colin Tourick, managing director of CitiCapital Fleet, most employers 'did their work on CO2 a long time ago' and he has not seen increased activity since the Budget.

    Commenting on the most popular corporate reactions to the new tax system, Tourick said: 'Clients that went to PCP schemes have seen drivers moving back to company cars, especially diesels. Clients which have considered ECOS schemes have said no.'

    CitiCapital Fleet has also seen a move to cost-saving restricted badge fleet schemes for drivers.

    Lex Vehicle Leasing managing director Jon Walden said the biggest change from the new benefit-in-kind rules was a shift from petrol to diesel cars.

    'That's been happening for a while and it is still continuing,' said Walden. 'Our order book is now about 45% to 50% diesel. We haven't noticed a surge of companies reviewing their fleet policies but car choice lists have become wider in some cases as drivers expect more if they are paying more tax.'

    Walden said he had not noticed a trend towards cash for car schemes and many customers were sticking to the traditional contract hire route for sourcing their company cars.

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