Fleet News

Company car to remain king, but value should be priority

Company cars will remain a sought after benefit by employees despite rising levels of taxation - but employers and drivers must increasingly focus on value rather than cost, according to a speaker at a recent FIAG workshop.

In a keynote address to the Fleet Industry Advisory Group’s (FIAG) Winter Workshop, tax expert David Rawlings highlighted how employee demand for company cars had proved remarkably resilient despite increases in benefit-in-kind taxation over many years.

The government has already announced annual rises in company car benefit-in-kind taxation to the end of the 2019/2020 financial year, but Mr Rawlings, director of business vehicle and taxation advisers BCF Wessex, said: “The percentage increases in tax look horrible, but in pound note terms company cars still deliver great value.”

Addressing the workshop, Rawlings reflected on recent history to look to the future.

He told delegates to the workshop held at the home of Northampton Saints, the premiership rugby union side sponsored by Travis Perkins, whose group fleet director Graham Bellman is a FIAG founder: “When emissions-based company car benefit-in-kind tax was introduced in 2002 many pundits forecast the death of the company car.”

Yet, while there had been a decline in company car popularity since then, latest HM Revenue and Customs’ data shows that the number of recipients has plateaued in recent years at 940,000 yielding £1.29 billion in benefit-in-kind tax and a further £530 million in employer Class 1A National Insurance in 2013/14.

Rawlings said that despite the switch to a carbon dioxide (CO2)-based company car benefit-in-kind tax regime and regular increases in tax thresholds, the value of company cars remain undiminished.

For example, he cited that prior to the new regime the amount of tax due for a high mileage, higher rate taxpayer per £1,000 of list price on a 2002 Ford Mondeo was £60, which was a similar amount paid by an employee at the wheel of a low emission derivative in 2016.

Rawlings said: “Company car tax rates have increased, but we are where we were 14 years ago. I don’t buy the arguments that tax has killed the company car, although what we don’t know is where company car tax levels will end up.”

The government is currently reviewing company car benefit-in-kind tax from 2020/21 and an announcement is expected by Chancellor of the Exchequer George Osborne in the Budget on March 16.

Rawlings predicted that over the coming years taxes would have to increase with revenue raised used to support the development of alternative fuel technology while the government also looked to tackle air quality issues.

Nevertheless, he concluded: “Smart employers and company car drivers should focus on value rather than cost. The company car is, and will remain, one of the most sought after benefits over the next 15 or 16 years.”

Workshop delegates discussed the future of the company car in a number of fundamental areas: creating policies, managing costs and potential alternatives to car journeys.

Key points raised were then highlighted by round table ‘champions’ Marcus Bray, a FIAG founder and head of sales at Fleet Service Great Britain, Bellman and Kevin Basnett, managing partner at Wiltshire-based Goughs Solicitors.

During the discussions delegates agreed that employers continued to offer company cars because they remained a key employee recruitment and retention tool. However, it was emphasised that employees appreciated choice flexibility particularly if a perk driver.

Bray added: “Employees pay company car tax and have no other costs, notably in terms of service and maintenance. Company cars are hassle free. They remain popular because of their convenience and that aspect is undersold.”



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Comments

  • Nigel Boyle - 05/02/2016 11:38

    The problem in increasing the BIK percentage is that it gets more and more expensive because manufacturers also increase the car price each year too. It is a double wammy. If the BIK percentage was set then employees would pay more with each new car as is costs more than the last. BIK is meant to tax the driver so the cost is the same as if they owned it. Once you buy a car you do not get an additional invoice each year from the manaufacturer, the principal of an annual increase can actually only be to tax and not of mimic the real cost. It is a £1.29M windfall for the government that will inevertably be lost when the price becomes so high that the company car will die.

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    • MR.Bean - 05/02/2016 13:17

      To a point I wouldn't worry about the price list increases. All manufacturers are offering additional discounts with some giving money away to get the business. In real terms the discounts will off set the BIK. What you need is to ensure Fleet Managers ensure the driver allowances are looked at on a regular basis.

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      • Chris Byrne - 05/02/2016 16:03

        Not sure I understand this as the BIK is calculated on the retail price of the vehicle not the manufacturers discounted price?

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        • bob the engineer - 05/02/2016 20:11

          It is Chris, but Mr Beans means the extra tax the driver pays will be offset by the lower lease contribution he pays, as the lease is cheaper due to the lease company getting bigger discounts on purchase and passing that on... in theory!

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  • Ken Davis - 05/02/2016 12:10

    Unfortunately, what your saying and what we find are two different things. We are finding businesses looking at other ways of providing vehicles to their employees. It would be true that employees have become reluctant to go down the cash for cars route because the amount of money they have/are receiving, because the amount does not cover the cost of running the vehicle. We have found, where there is a proper car scheme in place where both the employee and the employer gain, the interest has/is being taken up. In my view company cars have become far too expensive and a lack of knowledge by both is where many people fall down on.

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  • bob the engineer - 05/02/2016 20:22

    The whole system is grossly unfair to many, in that the government treat all company cars as a 'flat perk' and they are not, severely disadvantaging many. Take 2 examples, one is an office based manager who gets a car as a perk, 95% of his mileage is private (including commuting) with the rest the odd trip to a meeting. The other an engineer who is required to have a car and does 90% of his mileage for business purposes and 10% privately. They are both taxed the same yet who gains the most? the first has a choice to opt out and take the bus, the second does not and cannot work without the vehicle. I very strongly believe there should be a system to apportion BIK to business use directly. Someone who only gets 10% personal benefit from the car should only have to pay 10% of BIK. I am sorry a lot of perk driver won't like this I know we all like to drive a nice car and if someone else is paying a lot towards it its attractive. I believe my system would be fairer and encourage more use of public transport, and take a lot of really unnecessary vehicles off the road.

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