But Paul Jackson, managing director of The Miles Consultancy, has turned this argument on its head by giving the go-ahead for staff to drive such vehicles as the Lexus LS430 and Audi A8. This is on the assumption that it represents how much money they have saved customers, not how much money customers have paid in fees.
Sales staff at The Miles Consultancy are not paid commission on deals. Instead they are paid commission on the savings they achieve for each customer, which makes the expensive car they drive a positive message rather than a negative one.
Savings the consultancy offer are based on a new cash allowance scheme, which it believes is unique in the market.
Created from an initial £250,000 investment, it promises savings to nearly all companies that offer cash in lieu of company cars and repays employees for the business miles they cover.
Few companies actually pay the full Inland Revenue Approved Mileage Allowance payments (AMAPs), which are currently 40p for the first 10,000 miles and 25p for any subsequent mileage, offered free of tax and National Insurance.
What Jackson points out is that if a firm was paying 12p a mile, then over 10,000 miles, up to 70% (28p) of the available tax-free payment would remain unused. Drivers can claim a tax credit on the unpaid allowance, but as it is a tax credit, it will be worth 22% or 40% of the amount that could have been paid through AMAPs.
Instead, the Miles Consultancy system can pay the full AMAP rate, but still save companies money because it is so tax efficient. The Inland Revenue-approved scheme ensures companies and employees get the full benefit from the unused proportion of AMAPs, delivering bottom-line savings that have totalled more than £17.2 million since the launch in 2000.
One key benefit of the scheme is that companies can replace part of the cash they pay employees with the AMAP allowance, which is free of employers' National Insurance Contributions, saving them 12.8% straight away.
For one company with a fleet of 50 cars, the savings from using AMAPS instead of a traditional cash allowance approach have totalled £100,000 a year, hence the cars Jackson's people can drive.
Jackson cliams the web and text-based service takes four weeks to implement and can pay for itself within 14 days.
He said: 'The leasing industry calls it a ghost product because it tends to just walk through closed doors.
'Every mile that a driver travels, there is a saving. The only time there isn't is when companies are giving the full allowance already – and who would do that?
'When employees claim tax relief on their unpaid allowance, they don't receive the full value of the payment (losing up to 78%), but even so, just 63% of people claim their cost back.'
To ensure the system works, drivers have to register their business mileage every month – they are reminded by e-mail, text or phone automatically – and the system then calculates the AMAP payment that can be made. Although mileage capture can be a problem for fleets, Jackson has achieved a 93.7% success rate with the new scheme.
The service also systematically checks that employees have serviced their vehicles properly, that they are insured and taxed and in a roadworthy condition. This helps companies meet their duty of care requirements.
Currently, customers are charged a set-up fee of £125 per person for the service, then £3.50 a month. For a fleet of 750 or more, it is £55 per person and £2.25 per month.
You only pay when people are using the system as each user comes on board.
The service works with cash allowance schemes, PCPs and employee car ownership schemes. Fleets must be 50 vehicles or more and a CD-ROM product is planned for the smaller end of the market.
Jackson predicts there could soon be more than 50,000 drivers covered by the system, which has been tailored using years of experience in the banking industry.
Between 1997 and 1998, Jackson was offshore manager for Barclays Merchant Services, moving to become e-commerce and acquiring solutions manager until 2000, when he began work on founding The Miles Consultancy, which now has seven members of staff.
It recently introduced a new suite of products providing full management of mileage capture, reporting, ECOS Utilities, benchmarking and ECOS reconciliation.
It is also having business referred by two major accounting firms, while a major IT outsourcing company is looking at selling the product.
Jackson said: 'Human resource and finance departments love the idea, because it is an easy saving. By targeting our sales people on savings delivered to prospective and existing customers, means both staff and customer get the rewards.
'In addition, as our solution is unique and works for all companies who are looking at or already offer cash in lieu of a company car, we find more companies approaching us.'
Companies already using the system include GE Power Controls and Sharp Electronic, which previously used a cash allowance and ECO scheme.
Case study
COMPANY X currently pays an employee £4,000 a year allowance in a cash-for-car scheme and then reimburses the driver 12p per mile for driving 10,000 miles a year.
However, the driver does not receive the full £4,000. Because it is paid as part of his wage, he has to pay tax at 22% and also loses 11% to National Insurance Contributions.
Employers also pay Class 1A NIC on the salary as well, which are 12.8% on earnings above £89 per week. This means the company is paying £4,000 a year to provide the employee with a cash lump sum, after tax, of less than £3,000, while also paying tax of £650 itself for providing it.
Currently, the employer is paying 12p per mile, equivalent to £1,200, tax and NIC-free.
The Miles Consultancy points out that if the employer paid the full 40ppm, then the driver's tax and NIC-free pay would leap to £4,000, an increase of £2,800, which is effectively what the driver is receiving as his cash allowance, once all the taxation has been accounted for.
Therefore, if he just got the full AMAP allowance instead of a cash lump sum, the driver would be in the same position, if not better off, while at the same time the employer would slash its own National Insurance costs.
Employees won't lose out – they just get paid in a different way. In fact, they could benefit if mileage goes beyond their predicted level. Companies benefit hugely because they avoid the NIC they would have paid on a cash-for-car scheme.
The lost allowance
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