Fleet News

Staff choose cash over car

Employees offered a company car or a cash alternative should focus on the ‘true value’ of a company car, according to a tax expert.

The advice comes in the wake of a survey of more than 2,000 companies by Towers Watson, a global professional services company, which reveals that cash alternatives are outstripping company cars as the most popular benefit.

Almost 80% of managerial level employees are eligible for car benefits with most offered the choice of a car or a cash alternative. Just 12% are offered only the car option.

The survey shows that 57% of employees entitled to a company car have opted to take the cash.

Darryl Davis, senior consultant in Towers Watson’s Data Service division, said: “We have seen a steady increase in the value of car schemes per employee, but the trend has been for more schemes to move from company cars to cash-based allowances, or to offer employees a choice.”

Government figures on benefit-in-kind tax reveal a steady decline in the number of company cars over recent years.

HM Revenue & Customs estimates that there were 950,000 taxable company cars in 2010/11, down from 970,000 in 2009/10. This is a fall of more than 20% over the past eight years, from 1.2 million company cars in 2004/05.

Jeff Whitcombe, director at BCF Wessex, said: “I have been surprised by some of the reasons suggested for the fall and I think the reduction is too easily attributed to increasing taxation. 

“Since 2002, when the minimum was 15% of a car’s list price, the minimum appropriate percen-tage has fallen to as little as 5%, excluding EVs, and it won’t reach 15% again until 2016.

“Over this same period, the adoption of low- emission cars has been supported by the availability of first-year allowances, which significantly reduce the wholelife cost of qualifying cars.”  

Whitcombe believes the double-dip recession has been the single-most influential factor. 

“With company car tax rates set for the next five years, as the economy improves I would encourage drivers and employers to use this to their advantage by planning ahead, and focusing on the true value of the company car,” he explained.

“For example, take a higher-rate employee who is considering whether to take a Toyota Prius T3 as his new company car or to take a £7,000 gross cash alternative and make his own arrangements.

“With a list price of £23,950 and CO2 emissions of just 89g/km the income tax due this year would be £958, or just 4% of the car’s list price. 

“If the employee took the cash alternative, he would pay tax and NIC of £2,940 and would then have to acquire, maintain and insure his own car.”

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  • Robert - 03/10/2012 09:56

    There is little doubt that a company car remains one of the most tax efficeient benefits. Looking at the HMRC figures in more detail (average taxable value) it can be seen that the cost of a company car to an employee has fallen in real terms over the past seven years. This, coupled with stable - or even falling lease costs - means that the company car should remain as a key element of reward and benefit strategies.

  • Premierblue - 03/10/2012 12:05

    This report confirms what everyone in the Industry already knows, and that is the illogical selection of cash in lieu of a more valuable company car benefit in many cases. I suspect the real reason is poor information for employees at the point of selection, although it has to be said that many employers also lack understanding of the true costs of all the car benefit options. If employees are given the choice between car benefits (that may even include ECO) it is vital they understand the relative costs, risks and benefits so that they can make informed decisions.

  • Tim Muir - 04/10/2012 09:05

    This is all very well taking into consideration the authors"choice" of vehicle on which his calculations are based. Recalculate the cost to the individual if it is a 2.0 litre diesel with a list price of £25K, which is the norm for most manangers. you will then see it does become punative to the individual. Rather a one-sided agrument.

  • Robert - 05/10/2012 10:20

    If you look at the HMRC statistics the average BiK in 2010/11 was £3,830. In 2005/5 was £3,530. Adjusted for inflation that would have risen to over £4,000 by 2010/11. There can be little doubt that the company car remains a tax efficient and attractive benefit. A 'typical' Audi A4 diesel would cost a 40% tax payer an average of £1,900 a year in tax over the next three years. £160 a month for a £27,000 car doesn't feel 'punitive' to me.

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