Organisations should not rush into offering drivers cash allowances without considering the benefits of a company car, warned Mike Moore, director of Deloitte.
He has seen a number of clients begin to offer cash allowances as the cost of operating a company car has risen.
For example, by the end of the 2021/22 tax year, a company car driver will have seen their benefit-in-kind tax bill for a typical perk car rise by around 130% since 2013/14.
However, he added: “The one thing to bear in mind when talking about moving to cash is that you cannot dismiss the fantastic benefit a company car is.
“The type of car an employee is provided with can make them feel valued while, from an employer’s perspective, a company car scheme enables it to provide a harmonised benefit for any particular grade and job need, it moves away from the personal circumstances and they have control over what they provide to your employees.”
Moore (pictured) said company cars also ensure employers fulfil their duty of care responsibilities as they are providing staff with vehicles that are safe and well maintained.
Company cars also help with an organisation’s wider corporate responsibilities as the incentives for choosing greener vehicles are greater for company car drivers than private buyers.
Moore said the clients who are moving to cash allowances tend to be SMEs which have around 100 essential users and a similarly sized perk fleet, rather than large corporates.
What to consider when looking to replace company cars with cash allowances
For those employers who are looking to replace company cars with cash allowances, there are a number of things to consider, he added.
These include the size of the allowance: what may be cost neutral to the employer when wholelife costs are taken into account, may not be cost neutral to the employee.
Based on an example calculated by Deloitte, if the total wholelife cost of a 112g/km car with a P11D price of £27,500 for a 40% taxpayer over a four-year term was £24,591, giving this sum to the employee would make it cost neutral to the organisation.
However, the employee would be £4,645 better off if they acquired the same car privately.
But if the employer gave a cash allowance of £17,039, then this would be cost neutral to the employee and would save the employer £7,552.
Moore added: “If you are moving towards a cash allowance system, then you need to look at the finance options available and the choice for fleet providers is how are they going to support their employees.
“We have yet to come across a business that says ‘we are going to give you cash and walk away’. What they tend to do is work with their current lease providers to look at solutions that aren’t a company lease and what is available.
“There is also the issue of whether you can use the corporate discounts that organisations have access to in personal finance packages.”
He added: “As with all changes in policy, you need to have some degree of scepticism about what is being offered to you. If you have a package that looks too good to be true then it probably is.”