Peter Crush examines the three main ways employers can manage cars in their organisation – including what’s changing and what factors they need to consider

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1)      GREY FLEET:

THE PERK: Paying staff to use their own cars (so-called ‘grey fleets’), undoubtedly ‘perks-up’ employee’s existing cars. Generous recompense of 45p per mile for the first 10,000 miles and 25p thereafter (far more than the typical 10p/m it costs in fuel) means staff see this as a way to earn extra money. Not surprisingly, there are three times more grey fleet cars (4 million) as there are company cars. Some 57% of ‘work miles’ are driven in staff-owned vehicles (source: The Efficiency Reform Group), clocking up 1.4 billion miles pa. There is still significant demand from staff to have this solution.

WHAT’S CHANGED: Despite strong employee demand, employers are subtly being encouraged to reduce them. Increased duty of care responsibilities (including the Corporate Manslaughter and Corporate Homicide Act 2007), requires greater management from an insurance and paper-trail point of view, while since 2015, the Energy Savings Opportunity Scheme requires organisations to begin collating energy audits every four years. Most grey cars are six-seven years old (compared to a company car’s 1.5 years), meaning bosses are missing out on five years’ worth of CO2 efficiencies. But it’s the cost of paying mileage that hard-pressed organisations are finding harder to swallow. A Fleet News FOI request this year found UK councils (traditionally high users of grey fleets), spend more than a quarter of a billion pounds on mileage. The council with the biggest bill was Suffolk County Council which pays out £7.5million every year. Bournemouth Borough Council has the largest number of grey fleet drivers, at 12,418 employees.

WHAT TO CONSIDER: The general rule of thumb is that any employee driving more than 5,000 miles per year for work is better off moving to a company car scheme.

OPTIONS TO PURSUE: Although the 45p Approved Mileage Allowance Payment (AMAP) is recommended by government, employers aren’t compelled to follow it and they can set their own levels. In 2011 Natural Resources Wales dropped its AMAP from 40p (the level at the time) to 25p to cut the £200,000 pa it was spending in mileage to 292 grey fleet drivers. Figures for 2012/13 show it achieved an 86% reduction in fleet mileage compare to 2004/5 (a saving of £180,000 pa). With the average age of grey cars 6.6 years (one was 24 years old), it also declared there would be no mileage reimbursement for cars above 140g/km CO2 emissions. Staff also had to provide evidence vehicles were insured for business use, and they were serviced to the manufacturers’ guidelines.

WHAT THE EXPERTS SAY: Many staff may not be aware they have to pay tax and National Insurance on any reimbursement above 45p per mile. If, however, employers reduce their AMAP to below 45p per mile, staff can claim tax relief on the difference (the so-called Mileage Allowance Relief). Hitachi Capital Vehicle Solutions’ Mike Belcher recommends reducing rates in line with the much lower Advisory Fuel Rates (AFRs) paid to company car drivers.

STATS:

  • 25-33% of all road fatalities and serious injuries involve somebody who is driving for work purposes

2)      POOL CARS:

THE PERK: Pool cars are vehicles that are there for employees to take whenever they like on a non-exclusive basis, and provided they’re used for business journeys (including driving home if staff need to start an early drive the following morning, or driving to company-paid training), they don’t attract any complex reporting and company car tax. Typically anything 5% or less of total annual mileage is permitted for private use. Companies that buy a pool car outright can get back 100% of the VAT. Pool cars cease to be this if they are allocated to a specific employee.

WHAT’S CHANGED: “There’s been a large reduction in companies buying and then paying for the running costs of cars that sometimes just sit there unused,” says Carlos Montero, commercial director, FleetEurope. “They’re being replaced by more on-demand rental solutions – either contracted leased pool car solutions or daily rental solutions.” Contracted pool car deals for two-three years tend to work out most cost-effective, and suit employers whose staff drive less than 5,000 miles per year, but more than 120 miles per week (anything less and paying staff for their grey car mileage tends to be cheaper). In 2011 Dunfries and Galloway Council revealed it reduced its travel bill by 12% after launching a car pool scheme.

WHAT TO CONSIDER: This is a ‘benefit’ that in the strictest (HMRC) sense shouldn’t be really be touted as an employee benefit at all – even though usage of pool cars for some personal use is allowed (for instance on compassionate grounds, or if minor emergencies crop up – like parents suddenly having to pick up poorly children from school. “Theoretically, these are cars that have to stay on the company premises,” says Montero. In fact he advises employers to buy cars that are as functional as possible, with little regard to brand, to prevent them being seen by staff as anything but a car for work purposes. However, employers should understand there is still a sense of engagement to be gained by ensuring staff aren’t made to feel they’re driving around in old bangers. One thing employers will need are policies for checking their staff’s eligibility to drive. “It’s companies’ responsibility to check employees are allowed/fit to drive. Annual checks should suffice, as well as a form each time that staff sign to confirm they’re not illegible,” says Montero.

OPTIONS TO PURSUE: Carpooling is at the other end of the spectrum of pool cars, where staff can share the vehicles (including grey fleet cars) of other staff. Providers include Carpoolwrold.com and liftshare.co.uk. Typically they’re organised by staff amongst themselves, but company endorsed programmes enable staff to claim back mileage (at 45p if it’s for a business trip), plus 5p from HMRC because it’s a shared journey. According to Liftshare.co.uk when firms sign up to offer the scheme, the average take-up is 28%.Organisations running them include E.ON UK and Canterbury City Council Manchester Metropolitan University.

STATS: If everyone who regularly drives to work alone gave another similar driver a lift just once a week, the number of commuting cars would fall 15% (ONS)

3)      COMPANY CARS

THE PERK: After falling out of favour in the noughties, company cars are back as a perk; industry figures revealed company car registrations at the start of 2015 were up 16.8% on the year before. They’ve risen consistently since 2012 with the Vauxhall Corsa and Ford Focus most popular at number one and two respectively. However, their dominance is now being challenged by being able to offer the ability for all staff to get their own car (regardless of status), by salary sacrifice.

WHAT’S CHANGED: The introduction of cars via salary sacrifice has dramatically shifted the market over the last three-four years, giving car status to those not at the right qualifying level to get an actual ‘company car’. Last year 5% of all cars sold in the UK were via salary sacrifice, with consultancy OC&C predicting this could double to 10% by 2025. Tusker, the UK’s largest provider provided 135,000 cars to staff last year, but in the first five months of 2015, had already hit 120,000. Employers benefit too (a sacrificed amount of £350 a month would see employers pay £43.30 less in NI each month - £570 a year).Says Tony Murtagh, VP of sales at FleetCor: “ECO (employee car ownership) was the precursor to salary sacrifice cars. ECO promised the earth, and didn’t deliver. Now, salary sacrifice is as much about engagement and reward as it is management of vehicle assets. Salary sacrifice works because it provides a fantastic perk at no virtually cost to the employer. The barrier for SMEs was previously the admin burden, but providers take this away.” He adds: “In the future, I can see company cars and salary sacrifice cars merging into one single offering – salary sacrifice – because nowadays offering a car is less about status. It’s also still the case some company car benefit recipients are cash-takers rather than car takers, which employers might want to discourage, as many cash takers then go onto buying cheaper grey cars.”

WHAT TO CONSIDER: As less tax and National Insurance Contribution is payable, salary sacrifice provides a ‘discount’ towards the cost of the benefit provided, making it financially attractive for both the employee and employer. However, a twist is that the car is still treated as a company car and therefore deemed a Benefit In Kind. This does mean company car tax is payable by the employee with the employer liable for the Class 1A NI contributions. In June mini tremors were felt when government said it would be reviewing car salary sacrifice (seeing it as potential lost revenue), but industry commentators regard it as a ‘safe bet’ for now. A bigger concern has been the fact salary sacrifice cars are leased, so that if an employee leaves, the car is left with them as a depreciating asset. 

OPTIONS TO PURSUE: A recent innovation has been to ‘novate’ the lease – the legal term for allowing employees to transfer the leasing of a car to a new employer if they leave their current one. SG Fleet are so far the only provider in the UK offering this. Other innovations are around ease of use. Earlier this summer provider Fleet Evolution launched a bespoke SME service promising only 30 minutes of admin time per month. Director Andrew Leech says: “Salary sacrifice has a misguided reputation for being complex and risky. Once our scheme is set up, thirty minutes a month is the extent of the paperwork. We also have contingencies in place for situations like an employee leaving the company, or vehicle damage, making the scheme practically risk-free.”

STATS:

  • 2008 – The first car salary sacrifice scheme was launched in the UK by Tusker
    • Through salary sacrifice, staff can also enjoy up to 30% off on-road motoring costs (such as the cost of new tyres, servicing etc)

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