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One reason for this is the removal of the buying clout commanded by their employer and another is inflation in the cost of different elements of car ownership which means the allowance does not match the outgoings.
COMPANY CAR IMMUNE TO RISING CHARGES “We have seen a 20-25% increase in insurance costs and similar levels in maintenance charges, plus changes in VAT. But a company car is immune to all that,” says Ian Hughes, commercial director for Zenith. Conversely, in an attempt to be fair to the driver, corporations review cash allowances in line with salary, so if the driver gets a 2% pay increase, the cash allowance follows suit. But if an allowance is based on CO2 bands, this could mean someone who was entitled to a Volkswagen Golf with emissions of sub-120g/km three years ago could be driving around in a BMW 5 Series, now with emissions of sub-120g/km. Not only could the allowance have been reduced but the larger car has an associated higher road fund licence, fuel consumption and insurance. There is also the issue of mileage allowances. A cash allowance is supposed to cover everything except fuel, but mileage paid at 45p per mile is meant to include the whole cost of running the car. Companies “are not getting involved in this kind of discussion,” says Nigel Trotman, strategic fleet consultant for Alphabet. Even lower disbursements come with complications. Typically, companies pay around 14p per mile, but drivers are entitled to claim 45ppm from HMRC, so they can claim 31ppm (45p less 14p) for the first 10,000 business miles and 25ppm thereafter. These are known as approved mileage allowance payment or AMAP rates. “That is one of the reasons employees like cash for cars because they get an injection of cash but the employer can deliver those AMAP rates in a tax-efficient manner so that the employee still gets them and the company reduces its overall cash allowance liability,” says Matthew Walters, head of LeasePlan Consultancy. In addition, if an employee leaves within a year of receiving the allowance, they already have the money and although the employer can write in a caveat, it is difficult to enforce the return of the cash. If the individual has a car, however, they can buy it or leave it behind.
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3%
Given the complications surrounding cash, many businesses are getting back into the comparatively safe haven of company cars
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Not surprisingly, given the complications surrounding cash, many businesses are getting back into the comparatively safe haven of company cars and thanks to the successful efforts of manufacturers to produce low-emission vehicles, this is no longer the expensive option. Where they do not go quite that far, salary sacrifice provides a convenient and financially efficient stopping-off point, allowing employees to sacrifice an amount per month before tax to pay for a car. Drivers pay BIK but with a low-emission car this is minimised. There are strong arguments for splitting drivers into categories. Where drivers have high business mileage and/or are customer facing, many organisations are mandating company cars. However, a board director with attendant salary and higher disposable income benefits from taking cash because at a 40% to 45% BIK threshold, they will be hit harder with a company car. And if drivers take cash, there are ways to control it, including rental schemes which allow companies to keep track of cars and their maintainance. Even cash for cars can be set up to give companies peace of mind regarding duty of care but the best option is to construct the fleet in the ways best suited to its use. And that means a combination of company car and cash allowance.
diesel engine surcharge is being removed from benefit-in-kind tax in 2016
45
pence per mile mileage allowance for the first 10,000 business miles under the HMRC’s approved mileage allowance payment rates
n WA N T TO K N OW M O R E ?
fleetnews.co.uk
ARE YOU WASTING MONEY ON CASH FOR CARS?
alphabet.co.uk
CONSULTANCY ADVICE ON CASH
zenith.co.uk
DUTY OF CARE RESPONSIBILITIES
cashorcar.co.uk
ADVICE ON BEST OPTION FROM STAFF POINT OF VIEW
www.mydrivingbusiness.co.uk ❚ Autumn 2013 ❚ 17