One of the UK’s biggest suppliers of construction materials will save £1 million over the next three years after overhauling its company car scheme.
Hanson is switching from a mix of company cars, cash allowances and mileage payments to a new, consolidated scheme for all of its drivers.
It means the number of participants in its company car scheme could rise from 100 to potentially all its 750 employees. The only constraint is business mileage – those with very low mileages will be excluded. They will continue to reclaim fuel when driving their own cars on business.
Pendragon Contracts will manage the policy based on a wholelife cost model.
“The policy change was prompted by a need to provide greater consistency and fairness for all Hanson UK car users, as well as improve sustainability and safety standards,” says Androulla Sofroniou, procurement manager for Hanson UK.
“It also needed to be attractive to both employees and the company.”
Integration of three separate businesses into Hanson UK in recent years had resulted in the different company car policies.
Drivers in the same job grade and often in the same part of the business had different arrangements.
Some received a company car, some were paid monthly cash allowances, others had to submit mileage claims.
To implement the new scheme, Pendragon Contracts developed a bespoke online quoting system using the Deloitte Car Flex System.
Employees are directed to a Hanson-branded driver information centre, which provides the information they need to choose an appropriate car.
“It includes all the benefit-in-kind tax rates and allows them to trade down and neutralise the personal tax liability,” says Sofroniou.
To neutralise personal tax liability, a driver must select a car which provides them with a trade-down value that negates the cost of income tax and NI due on the cashback they receive and covers the BIK tax.
“For example, an employee of a certain grade who is a 40% taxpayer selects a Toyota Prius 1.8 VVT1 T3 CVT,” explains Neal Francis, managing director of Pendragon Contracts.
“His monthly gross cash received is £83.93. He pays tax and NI on the cashback he receives of £35.18. The BIK due is £68.80 and the net income is £20.05.”
Cash allowances at Hanson were based on benchmark lease costs, which were often much higher than the wholelife model now used.
“In addition, staff paid by the mile had no incentive to car share or reduce business mileage,” says Francis.
The savings are expected to be around £1 million – 13% of total costs.
Three manufacturers have been selected that offer a wide choice of models with efficient engines.
They are Volkswagen Group (Audi, Seat, Skoda and Volkswagen), BMW and Toyota/Lexus.
Car options are within job grade bands and limited by CO2 emissions, which will drive down the vast majority of models on the fleet to sub-160g/km.
“The choice reflects their ability and commitment to be able to provide a good range of cars which satisfy a wide range of anticipated domestic requirements and needs, and offer a comprehensive choice of engine derivatives,” says Francis.
“This will enable drivers to choose what is important to them. These marques also demonstrate an ongoing development programme and commitment to producing a greener scheme.”
“Our comprehensive tender process looked at wholelife costs, including residual value, fuel consumption and servicing,” adds Sofroniou.
“The manufacturers chosen were not the cheapest in headline costs, but presented the best wholelife value and optimum level of choice.
“They also offer leading-edge CO2 reduction technology.”
Model makes ‘business sense’
Traditionally, businesses have worked to reduce their fleet costs by restricting vehicle choice, negotiating better terms with their supplier or using a panel of suppliers and opting for the provider that offers the cheapest monthly rental for each vehicle they require. These methods can generate initial benefits but, over time, they are eroded away.
Wholelife costs take into account all the related factors over the holding period: the acquisition price (not P11D price), level of depreciation, servicing and maintenance costs, VAT disallowed, Class 1A National Insurance
Contributions, insurance and projected fuel expenditure.
“The whole-life cost model demonstrates the total operating elements of running vehicles and therefore enables businesses to select the most efficient cars in the chosen sector, maximising their environmental, tax and financial efficiency,” says Francis.
“The more popular benchmark of VAT effective rentals can be grossly inaccurate, as it ignores the insurance and fuel elements which typically equate to 50% of a vehicle’s running costs.”