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Finance expert warns on pitfalls of PCP schemes

BUSINESSES moving over to personal motoring schemes could find the change 'riddled with difficulties' if they fail to plan carefully, a leading tax expert has warned.

Alastair Kendrick, a director with Ernst & Young, is warning employers of major hurdles they need to clear before successfully launching a scheme. One of the most important is control, he claimed.

He said: 'Employers will soon come to the conclusion that it is no longer safe to give cash to employees who are essential car users.

'By doing so they lose control over the type of vehicle that an employee uses and whether that vehicle is safe for its intended purpose.'

Even if a company states in its car policy that cash must be spent on a car that is 'fit for purpose' it can still be difficult to enforce.

Maintenance and insurance issues also need to be considered, as the vehicle must be safe to use on business and insured for corporate travel.

The size of the cash alternative is also a regular stumbling block. Kendrick added: 'Many employers have offered significant levels of cash to entice people out of cars. They are now saddled with that level of cash, but it has no resemblance to the actual cost of providing a vehicle to an employee. It is not uncommon to see senior management in cash allowances which exceed £10,000 per annum.'

To compound the problem, employers have not often put review dates in for the cash allowance which means that it is virtually impossible to change the allowance going forward.

Employers also fail to pay the cash allowance in the most tax- efficient way, for example through the use of Inland Revenue approved mileage rate payments, which are tax and National Insurance Contribution-free.

Kendrick added: 'The cash option can be fraught with many difficulties and it is vital that those who are seeking to go down this route consider whether it will produce the benefits they are looking for and that there is a financial benefit.'

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