FIAG Winter Workshop . . Northampton, UK . . 03.02.2016 The FIAG Winter workshop at Northampton Saints rugby ground. © Paul Marriott Photography

David Rawlings, director, BCF Wessex

Company cars will remain one of the most sought after benefits by employees despite rising levels of benefit-in-kind taxation – but employers and drivers must increasingly focus on value rather than cost.

In a keynote address to the Fleet Industry Advisory Group’s (FIAG) Winter Workshop, tax expert David Rawlings highlighted how employee demand for company cars had proved remarkably resilient despite increases in benefit-in-kind taxation over many years.

The government has already announced annual rises in company car benefit-in-kind taxation to the end of the 2019/2020 financial year, but Mr Rawlings, director of business vehicle and taxation advisers BCF Wessex, said: “The percentage increases in tax look horrible, but in pound note terms company cars still deliver great value.”

Addressing the Workshop, entitled ‘Will Tax Kill the Company Car – What’s in Store for 2016’, Mr Rawlings reflected on recent history to look to the future.

He told delegates to the Workshop held at the home of Northampton Saints, the premiership rugby union side sponsored by Travis Perkins, whose group fleet director Graham Bellman is a FIAG founder: “When emissions-based company car benefit-in-kind tax was introduced in 2002 many pundits forecast the death of the company car.”

Yet, while there had been a decline in company car popularity since then, latest HM Revenue and Customs’ data shows that the number of recipients has plateaued in recent years at 940,000 yielding £1.29 billion in benefit-in-kind tax and a further £530 million in employer Class 1A National Insurance in 2013/14.

Mr Rawlings said that despite the switch to a carbon dioxide (CO2)-based company car benefit-in-kind tax regime and regular increases in tax thresholds, the value of company cars remain undiminished.

Ford example, he cited that prior to the new regime the amount of tax due for a high mileage, higher rate taxpayer per £1,000 of list price on a 2002 Ford Mondeo was £60, which was a similar amount paid by an employee at the wheel of a low emission derivative in 2016.

Mr Rawlings said: “Company car tax rates have increased, but we are where we were 14 years ago. I don’t buy the arguments that tax has killed the company car, although what we don’t know is where company car tax levels will end up.”

The government is currently reviewing company car benefit-in-kind tax from 2020/21 and an announcement is expected by Chancellor of the Exchequer George Osborne in the Budget on March 16.

Mr Rawlings predicted that over the coming years taxes would have to increase with revenue raised used to support the development of alternative fuel technology while the government also looked to tackle air quality issues.

Nevertheless, he concluded: “Smart employers and company car drivers should focus on value rather than cost. The company car is, and will remain, one of the most sought after benefits over the next 15 or 16 years.”

Workshop delegates discussed the future of the company car in a number of fundamental areas: creating policies, managing costs and potential alternatives to car journeys.

Key points raised were then highlighted by round table ‘champions’ Marcus Bray, a FIAG founder and head of sales at Fleet Service Great Britain, Mr Bellman and Kevin Basnett, managing partner at Wiltshire-based Goughs Solicitors.

During the discussions delegates agreed that employers continued to offer company cars because they remained a key employee recruitment and retention tool. However, it was emphasised that employees appreciated choice flexibility particularly if a perk driver.

FIAG chairman Geoffrey Bray flanked by Graham Bellman, FIAG founder and group fleet director, Travis Perkins (left), and David Rawlings, director, BCF Wessex (right).

FIAG chairman Geoffrey Bray flanked by Graham Bellman, FIAG founder and group fleet director, Travis Perkins (left), and David Rawlings, director, BCF Wessex (right).

Mr Bray added: “Employees pay company car tax and have no other costs, notably in terms of service and maintenance. Company cars are hassle free. They remain popular because of their convenience and that aspect is undersold.”

Below are highlighted a number of other the key points from the areas of discussion.

Creating company car policies

A competitive employee market meant benchmarking of company car policies was “absolutely critical” in recruiting and retaining staff, it was suggested.

Mr Bray said: “Having gathered information employers must then decide whether they want to be above the market, mid-market or below the market.

“Some employers view cars as a tool of the job and others as a perk. Either way, if struggling to recruit or retain staff it is important to understand where the car policy sits versus competitors.”

Mr Basnett added: “Benchmarking can be difficult because of the wide choice of vehicles available. Some employers in shaping their company car policies are conscious of the brand image presented of their business.”

However, it was acknowledged that it could be difficult to collect benchmarking information from other companies within the same sectors of business so ‘casual discussions’ with fleet decision-makers at networking events could be crucial.

Many companies offered not only company cars but also salary sacrifice and cash allowance schemes and Mr Bellman said: “Employees want the choice and flexibility at a moment’s notice if their lifestyle changes.”

Managing company car costs

Ascertaining the true value of a company car is virtually impossible because there is no correlation in the cost of a vehicle to an employer and that of an employee.

Mr Basnett said: “The motivation for an employer to provide company cars may be to enable staff to move from one location to another or to recruit and retain employees, while for employees there is a financial cost and an emotional element.”

Although whole life cost figures are widely acknowledged as best practice in terms of being the starting point for compiling company car choice lists, it was suggested they were only part of the decision-making process.

Mr Basnett added: “It is important to take note of employees’ views in deciding which vehicles to put on the fleet, particularly if a job-need car. Vehicles must be fit for purpose and drivers have practical experience of what they require to do their job.

“When introducing a policy it is important to be aware of the impact it will have on drivers so consultation with staff is key. In too many companies there is a lack of joined up thinking across finance, HR, procurement and transport departments. The board of directors needs to lead because otherwise there can be conflicts.”

It was also suggested that it was vital to analyse whole life cost figures on vehicle defleet and not just when deciding which company cars to introduce to a fleet.

Mr Bellman said: “Whole life costs are an indicator of likely expense, but fleet managers should also reflect back on what the data is telling them. History can be an important indicator of the future and actual service, maintenance and repair costs, remarketing and end-of-lease costs are big influencers in calculating the true cost of a company car.”

Delegates also suggested that it was important to regularly review company car choice lists with some fleet decision-makers undertaking quarterly checks to ensure policies reflected the very latest manufacturer model changes as well as legislation amendments.

Company car alternatives

The company car remains king, but fleet managers are important influencers in the adoption by companies of alternatives such as telephone and video conferencing, car clubs and car sharing, it was claimed.

As fleet managers increasingly became mobility managers, Mr Bellman said: “Fleet managers have powerful information at their fingertips and it is about acting a catalyst for the business to help influence behaviour.”

Corporate social responsibility is a major focus for many employers with emission reduction and occupational road risk management to the fore.

However, it was suggested that in some organisations a two-tier policy may have emerged where tight controls were implemented in respect of company car policies – vehicle age limits, CO2 caps and other measures including driver profiling and assessment – but similar controls in respect of managing employees who drove their own cars on business, the so-called ‘grey fleet’, were missing.

Mr Bellman said: “Businesses must identify their ‘grey fleet’ and then establish a policy that is proportionate to the risk.”

Mr Basnett added: “Performance management is vital for organisations. If issues such as emissions and road safety are not managed that reflects in their performance.”

However, despite the emergence of alternatives and the growing importance of communication, as witnessed by many employees being ‘wedded’ to their smartphones, it was agreed that the company car will remain.

Mr Bellman said: “Communication is key for today’s young people as witnessed by smartphone technology, but face-to-face meetings are important. Company cars will survive.”

Mr Basnett commented: “The popularity of the company car will remain and not shrink. Telephone and video conferencing do work at a level, but face to face is often better; and other options including public transport are not always viable. The car is still king.”

However, Mr Bray said it was important for fleet decision-makers to keep an open mind as to the viability of car clubs, car share and other alternatives.

He said: “The flexibility of such options should be investigated. As a nation we like our own space and that is provided by the company car plus we have an inherent fear of change. However, the number of car clubs and car share schemes is growing, but for their use to become widespread there must be buy-in by senior management in businesses to drive change.”

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