Fleet News

Guest opinion: plotting a new course for drivers opting out

BALANCING costs and employee expectation is crucial when implementing a car exit policy. Howard Davies, of Independent Automotive Solutions, finds a new course.

'There is little doubt that structured company car exit policies are the most emotive and complicated form a cash alternative can take.

Employers, particularly those operating three-figure car fleets or bigger, find it easier to see the benefits as cost savings start to appear on the horizon. Unfortunately, the same cannot be said for employees who remain suspicious of having to follow a course that takes them out of the relative calm of the company car system.

Let's get two things straight – corporate savings are usually achievable but no-one likes being told they have to sign a loan agreement, whoever ultimately ends up funding the repayments.

More recently, structured exit policies have been designed to ensure employees at least share in some of the financial gains, making it easier for them to grow accustomed to the concept.

It should also be noted that implementation in terms of time and costs can be daunting (depending on the size of the fleet, up to 12 months with a six-figure consultancy fee at the end), although post-tax savings of about £1,000 per car per annum are achievable.

In practice, only employers who operate a fleet of at least 200 vehicles should consider implementing an all-out structured exit policy. Below that, it is highly likely that any potential cost savings will be outweighed by implementation and administration costs.

At the other end of the cash alternative spectrum is the 'straight monthly cash' offering. A recurring problem is that it has become outdated and therefore becalmed in uneconomic waters. Statistics indicate that less than 20% of eligible employees take it up and many employers tend to adopt a detached view, as they generally prefer their staff to stay in a company car.

As a result, instead of being an integral part of a reward strategy, a straight cash alternative often becomes a source of disgruntlement for employees who want to leave the company car system but feel press-ganged into remaining in it.

Clearly, what is needed is a cash alternative policy that can be tailored to fit the needs of employers, irrespective of the size of the fleet, and that at the same time will be recognised by employees as a viable alternative to the company car.

Enter the good ship 'Cost Neutral', carrying a cargo packed with everything needed to bring on board even the most reluctant of employees without incurring additional employer costs.

Structured properly, there is also an opportunity to reduce costs without adversely affecting an employee's purchasing power. Add to this the fact that a cost-neutral-to-employer cash alternative policy does not require formal Inland Revenue approval and can be introduced in a relatively short space of time (often less than three months), and you ask where the catch is? Quite simply, there isn't one.

The main differences between a cost neutral arrangement and a structured exit policy are:

  • Tax/NIC savings are substantially greater under a structured exit policy.
  • A cost neutral arrangement allows an employee to make the decision.
  • Feasibility work in connection with a structured exit policy is complicated, time-consuming and expensive.
  • Administering a structured exit policy requires the maintenance of sophisticated records if maximum savings are to be achieved and problems with the Inland Revenue avoided.
  • Communicating a structured exit policy to employees is difficult.

    In conclusion, a cost-neutral-to-employer cash alternative policy is not designed to generate anywhere near the same level of savings as a structured exit strategy. By implementing the arrangement in collaboration with a preferred corporate supplier, the benefits of hassle-free motoring associated with the company car can be preserved.

    Furthermore, with some straightforward policy work it is often possible to achieve corporate savings without having to endure the unavoidable complexities of a structured exit strategy.

  • Howard Davies is a former Inspector of Taxes and adviser to the motor industry
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