'Let the buyer beware! Not all personal funding schemes are alike and choosing the wrong one could cost a business dear.
For many drivers, 'money-for-car' schemes are already the cash saving solution around the new company car tax regulations.. And as carbon dioxide emission limits tighten over the next few years, greater numbers of company car drivers will benefit from taking the personal funding route.
##KenDavis--left## For many businesses, too, money-for-cars schemes can relieve them of the expense of operating a company fleet. But despite media coverage of the changes to benefit-in-kind tax and the various pros and cons of opting for cash, personal funding hasn't yet become as popular as it should.
This is mainly because end-user drivers, their employers and even the large leasing companies don't fully understand how schemes should work, the benefits they should bring and the pitfalls that lie in the way.
Among company car drivers, there is widespread confusion. Many of them may not have owned and run their own car for years and they just don't know how much they should be offered to cover the buying price and running costs such as maintenance and insurance.
Drivers must take many factors into consideration before deciding whether or not to opt for a money-for-cars scheme, including whether the amount of money being offered is enough to cover the cost of a car and whether they can convert that cash into a PCP scheme.
Also they must ask how many business and private miles they cover. Employees should over-estimate rather than under-estimate the total because additional mileage will incur penalty charges per mile.
Check how economical the car is to run, especially because drivers will pay for private mileage. Residual values are important. A car that holds its value better will reduce the monthly contract charges.
Assess how much it will cost to insure and whether the insurance covers business use. It could be the responsibility of the driver to arrange their own insurance and, if they have driven a company car for a long time, cover could be expensive.
However, while many insurance companies claim not to provide group cover for vehicles included in a scheme, they do offer that facility and businesses should use a fleet management company to negotiate group cover for their employees. Ask if the personal leasing scheme includes maintenance. It is wrong to expect drivers to rely on reimbursements for business mileage to cover maintenance costs on their vehicles.
Even if maintenance is included, drivers should also check what is included and if the amount of cover is restricted. Employers also need to be careful. There are many money-for-cars products on the market and it is pointless adopting any old scheme just because it seems to be the right thing to do.
Specifiers must first ensure that taking the money-for-cars option is right for their business, that the product they're looking at is an approved scheme and that it is the right scheme for both employees and employers.
Already, too many businesses – even major international PLCs – have had their fingers badly burnt by surprise tax bills. Businesses must also examine the implications to themselves of implementing a money-for-cars scheme. Personal funding schemes can be complex and may generate administrative and payroll issues for them.
And they must realise that the blanket introduction of a scheme may not be feasible, since some drivers – particularly high business mileage drivers – may be worse off. It can be done, though. Employees can dramatically reduce their personal tax bills, while companies can eliminate fleet running costs. That means more money in the bank for drivers and improved profitability for businesses.
But be careful – it's a money-for- cars jungle out there.'