Unlock savings with a flexible approach to funding
Fleets are urged to review funding solutions constantly to be better able to adapt to legislation and tax changes
A flexible approach to fleet funding remains a key consideration for employers looking to unlock fleet savings within the business.
Changes to the tax regime have transformed the way in which we are, or should be, looking at vehicle funding and in many cases a blended mix of funding solutions is now the best option.
A large proportion of fleets are, however, still being funded or acquired using one method only. Is it time to start taking a different approach to fleet funding arrangements?
The adoption of a blended funding approach will use a combination of funding products, assessed on a vehicle-by-vehicle basis, and is delivered using a mix of contract hire, contract purchase, outright purchase, employee car ownership and salary sacrifice. Such an approach can deliver significant cost savings and provide improved employee benefits.
Experts at Zenith use sophisticated technology to analyse the true cost of funding over the life of a vehicle and advise on the best blended solution to maximise efficiencies for an organisation.
Andy Wolff, sales director at Zenith, commented: “It is no longer considered best practice for fleet operators to assume that one funding method across their entire fleet is delivering the most value to their business. It is crucial that UK businesses work with their leasing provider to establish the most appropriate mix of funding products across their fleet.By selecting the right funding option on a vehicle-by-vehicle basis, fleets can significantly reduce their total fleet spend.”
Zenith recommends that funding solutions are constantly under review to ensure businesses can adapt to regular changes in legislation and tax, and take
advantage of the big leaps manufacturers are making with lower emission vehicles suitable for company car drivers.
An optimum funding method is not determined by a single factor and therefore needs to be calculated on an individual basis. The best way to achieve this is through utilising whole life cost and
funding comparison software in real-time for each and every driver at the point of order. If delivered as part of an online web ordering portal, this approach ensures each vehicle is acquired using
the most cost-efficient funding method for the employer.
Another growing funding choice is the deployment of salary sacrifice car schemes, which have grown in popularity because they allow employees to give up a portion of their monthly salary in return for a new car.
Under new OpRA (optional remuneration arrangements) legislation introduced in April, HMRC has fully approved salary sacrifice as a method of providing cars to employees.
Employees benefit from an all-inclusive package that covers everything from insurance and maintenance, to servicing, road tax, tyres and glass. Employers benefit from structured scheme savings and can relax in the knowledge that their duty-of-care requirements are being managed, while the argument that these schemes help improve employee retention and satisfaction is well established.
Salary sacrifice is effective for a broad range of cars, not just ULEVs (ultra-low emission vehicles), and can generate significant savings for employers dependent on the agreed set-up of the scheme.
A well-managed approach to fleet funding can deliver material benefit to UK fleet operators, with flexible options that account for balance sheet and cash flow preferences.
CASE STUDY 1:
Understand the true cost of fleet funding before adjusting policy
A UK business operating a fleet of 1,000 units and managing a 500-employee cash allowance was keen to continue providing a suitable car benefit to employees but wanted to better understand the true
cost of fleet to the business.
In particular they wanted to look at the difference between supplying a car or providing a cash allowance.
Once fully costed, they wished to explore further efficiencies through a review of funding products and complete an investigation into future legislation and tax implications to ensure any policy changes would be future-proofed against potential cost increases.
A review of newer and more efficient alternative fuel vehicles (AFVs) was also to be undertaken to assess those which could be used successfully within the fleet policy.
Zenith’s consultancy team was able to identify annual cost savings of nearly £900,000 through a wide range of measures including the adoption of whole life cost methodology, using mpgs more aligned to real-world figures.
The introduction of hybrid vehicles onto fleet, alongside these more accurate figures, assessed fossil fuel vehicles and ensured vehicles were correctly compared on fuel spend.
Funding analysis provided clear evidence on the cost of car versus the provision of a cash allowance and showed that cash allowances offered were generous when compared to the benchmark vehicle
of the aligned company car grade.
CASE STUDY 2:
Releasing operating cash through flexible funding
A fleet of around 420 vehicles with an additional population of eligible employees taking a cash alternative was funded through outright purchase.
Zenith’s consultancy team looked at to freeing up operating cash and rationalising fleet management. It identified annual savings of nearly £1.96m through a blended funding solution, restructuring of choice lists, alterations to private fuel policy and changes to reimbursement of fuel for cash takers.
Savings were identified by changing to a mix of contract hire and employee car ownership with an online portal available to quickly adapt this mix in line with future tax changes. A refreshed vehicle policy and a new online ordering platform strengthened the employer’s benefits package.