Company cars can save you money, protect your workforce, and keep your business on the right side of the law
What’s the point of giving employees company cars? That’s a question that wouldn’t have warranted asking a few decades ago, when company cars were seen as an unambiguous perk, a way of showing the workforce how much they were valued.
Since then, however, changes to the tax system have led to a dramatic shift in opinion concerning the pros and cons of company car ownership. A common perception among employees now is that a company car is a costly benefit – making private car ownership seem much more attractive by comparison.
A taxing issue
This point was made by Richard Webb, a tax specialist at accountancy firm Grant Thornton, during a recent roundtable hosted by Volvo at its Maidenhead HQ. In a presentation about the merits of providing company cars, Webb flashed up a picture of a Volvo 850 that he was given as a company car in the mid-1990s, saying that it was the last one he had for a long while.
“The tax burden became too great after this period,” Webb opined, “making it more affordable to take additional salary and buy my own car.”
The system in place at the moment calculates Benefit in Kind (BiK) tax liability on the basis of a company car’s carbon dioxide emissions, operating on a sliding scale with the more polluting cars carrying a higher tax burden than cars with fewer emissions.
In response, car makers have become adept at producing vehicles that keep CO2 emissions to a minimum – such as the ultra-economical Volvo V40 D2 that generates just 88g/km of carbon. As Webb noted, if employees are provided with models like this, company car ownership once again looks like an attractive proposition.
What’s in it for employers?
Quite apart from the benefit to employees, it can make good sense for employers to supply company cars to certain members of the workforce.
For a start, it can be cheaper to provide a company car than meet travel costs at 45 pence per mile. Moreover, by choosing low-emitting cars, additional employer National Insurance contributions payable on company cars are kept as low as possible. There’s also an opportunity for up to 100 per cent written-down allowance (WDA) in the first year of ownership on vehicles like the V40 D2, thanks to the fact is CO2 emissions fall below the current threshold for such capital allowances of 95g/km.
A further consideration is the responsibility companies have for their employees’ wellbeing under the Health and Safety at Work Act. Under this legislation, employers must ensure the safety of their staff, including when they are on the road.
According to the accident statistics, people who cover 25,000 or more business miles per year come third after deep-sea fishermen and coal miners in terms of their risk of dying at work. That’s a sobering thought, and one that brings the arguments in favour of providing employees with the safest possible transport into sharp relief.
As Volvo’s head of business sales, Selwyn Cooper, remarked: “By providing employees with new cars on a regular basis, and overseeing their maintenance, companies can be confident in their roadworthiness. In contrast, if you allow employees to drive their own cars and reclaim business mileage – making them part of the so-called ‘grey fleet’ – it’s much harder to ensure their safety on the road.”
Grant Thornton’s Richard Webb added another argument in favour of providing company cars, saying: “A decision to provide employees with cars is often seen as part of a company’s Corporate Social Responsibility (CSR) agenda. By equipping staff with low-emitting, fuel-efficient vehicles, employers are helping to preserve the environment, as well as providing a tax-efficient benefit to the workforce.”
Making the right fleet-buying decisions
Of course, it’s not always easy to judge the appropriate extent of a company car scheme. For some employees, it’s simply not cost-effective to give them a fleet vehicle, while for others it’s a way of saving money on mileage reimbursements.
To help employers navigate their way through the issues, Alex Baker’s company, Fleet Innovations, provides advice about buying decisions.
“We use mileage recorders to measure how employees are using their cars for work,” he reported. “That enables us to ascertain whether they are over-claiming their expenses, as well as providing an insight into the sort of use being made of their vehicle. With this information, we advise clients whether or not to supply a company car, and help them make decisions about the best type of car to provide from options such as electric, hybrid, diesel and petrol.”
On average, Baker said that he saves customers 22 per cent on their fleet costs – not least by enhancing the accuracy of their mileage information. This also stops them giving false expenses information to HMRC, thereby reducing the risk of a penalty or unexpected tax bill.
In some circumstances, the recommendation from Fleet Innovations is that employees don’t cover enough miles to make provision of a company vehicle cost effective. However, to help ensure they travel in cars that are up-to-date, reliable and safe, employers may want to consider salary sacrifice schemes as an alternative.
Under these schemes, as SG Fleet’s sales director Peter Crabtree explained, employees give up some of their salary in exchange for a car. Traditionally, this has been leased in their employer’s name, but SG Fleet adopts a different approach, whereby the car is put into the employee’s ownership.
“This means the employee is liable for the payments if they change jobs,” he said, “so companies are not tied into agreements on cars for staff that have moved on.”
The merits of such a scheme are that employees take advantage of the enhanced buying power of their company to secure better value for money. In addition, they pay tax at the BiK rate, rather than their income-tax rate, on the amount of salary given up to fund their car – meaning they are better off than if they received the money as wages and then spent it on personal car finance.
By far the greatest benefits, though, are to the employer. Indeed, whether vehicles are provided as company cars or via salary sacrifice schemes, they can ensure safety, reliability, tax efficiency and compliance with the law – for employers and their staff members alike. And when you put it like that, it’s not hard to see the compelling case for helping employees travel in the best possible style.
To find out how Volvo can help to keep your drivers safe, Call the Volvo Car Business Centre on 0345 600 4027.
Source: Volvo Roundtable Event