· 8 min read · Features

Fleet management - New lease of life for company cars

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Tax and law changes associated with owning a company car have lessened its status recently. Now HR directors and fleet providers are collaborating on restoring its appeal.

Where did it all go wrong for the company car - once the most prized of all company perks? Since the turn of the century, the number of company cars on the UK's roads has declined by a massive half a million - from 1.6 million in 2000 to 1.1 million today, with some believing this perk is now long moribund.

Many commentators point an accusing finger back to 2002 - when benefit-in-kind tax rules meant the company car changed from being a status symbol (and a way to boost an employee's remuneration package by reducing their tax bill) to being a much less favourable benefit for employers to offer and for staff to choose. Before April 2002, drivers paid tax based on the number of miles they drove. But the tax system was then revamped to take into account the amount of CO2 emitted from each vehicle. Today, the less polluting the car the less tax you pay.

The Corporate Manslaughter and Corporate Homicide Act introduced more red tape. It took effect in April 2008 making employers culpable if workers are harmed while in any car on company business. There are an estimated two million privately-owned cars used for work purposes and more than one third of UK road accidents involve business drivers, according to PricewaterhouseCoopers (PwC)).

But could the tide now be turning? Chairman of the Association of Car Fleet Operators Julie Jenner says HR departments are now becoming much more involved in company car programmes than they were 10 years ago when companies tended to have dedicated fleet managers. She says HR directors are increasingly sitting on fleet committees within organisations alongside representatives from procurement and finance. "There can be issues because handling a fleet is not the HR manager's sole job but, given this is usually an organisation's biggest expense after payroll and buildings, it must be taken seriously," says Jenner.

"We are certainly not seeing the death of the company car in the UK just yet," adds PwC partner Matthew Hunnybun. "It is a difficult beast to kill."

Both are seeing HR directors and suppliers working together to come up with more inventive ideas for giving the company car a bit of an image makeover. We look at just three of the ways company cars are making a return to their former glory- two from the employee's point of view, one from the employer's.

THE EMPLOYEE VIEW

- Short-term leasing

The traditional model of long-term leasing - keeping the same car for years on end - is a constraint that could be coming to an end, as company car drivers seek the same flexibility that changing their own car affords. One solution enables employees to have cars for a few months at a time, and change them literally with the seasons: a sporty coupe for the spring; a convertible for the summer; a tough 4X4 for the winter.

Short-term leases were initially introduced for contract staff or new starters on probation, but the flexibility to return and replace cars more frequently appeals to employers. This is despite it being a more expensive option, costing up to 20% more on a pro-rata basis.

One company promoting short-term leasing is Manchester-based Equalease. Managing director Paul Ashton says demand for the service has actually increased during the recession. "This was a part of the company car market that had been neglected, but we are seeing companies willing to pay a premium to retain flexibility and lessen their commitment to a specific leasing company," he says.

Equalease provides leases of between three and 12 months on cars that are less than two years old. The agreements include a standard annual mileage allowance of 1,250 miles per month, maintenance, breakdown cover and road tax. A Volkswagen Golf 1.9 TDI Match five-door manual costs £280 plus VAT per month for a six-month lease.

According to CFC Solutions, which provides fleet software to employers, there will be huge growth in what it calls Flexi-Fleet management, but managing director Neville Briggs says it will not replace longer-term leases completely. "Companies will require a mix of long-term, short-term and grey (people who use their own cars for work) fleet options to fit the ever-changing needs of their business," he says. "More contract hire companies are dipping their toes into the short-term leasing market because employees want this. The difficulty is getting the price right so it appeals to both parties."

Briggs expects employers to make more use of daily rentals too. This is a view echoed by Peter Cooke, professor of automotive management at the University of Buckingham. Speaking at the GE Capital Future of Fleet conference in Warwickshire in October, Cooke said he expects car dealerships to start offering employers short-term hires. "There is certainly potential for daily rental to allow some employers to cut back on the number of company cars and instead use hire cars as needed for personal business mobility," he says. "This will not result in an overall reduction in the number of company cars."

One company choosing a short-term leasing option is Manchester-based architectural and interior-design company Masonwood Design. Managing director Peter Littlewood says the recession and the nature of his business prompted the move. "We have a fleet of five vehicles for our technical staff and I wanted to keep things flexible," he says. "We used to buy cars but this way we can change vehicles every six months. Our work is countrywide and we did not want people to put too much mileage on their private vehicles."

Not everyone feels shorter leases are a good idea. Mark Sinclair, director of fleet management company Alphabet Fleets, would prefer flexibility in this market to mean employers reallocating cars among staff rather than shortening hire periods. "We are not seeing a demand for shorter leases," says Sinclair. "This is because you can pay a lot more for this sort of scheme and as an employee you cannot always determine the model or spec of your company car."

- Salary sacrifice

Another popular idea being suggested to employers is an extension or introduction of a salary-sacrifice scheme to include company cars. This allows more staff to enjoy the benefits of driving a reliable car that is regularly maintained, insured and taxed. Employees agree to a reduction in their pay to receive this non-cash benefit. Such schemes are particularly suitable for employees who drive only occasionally for business.

According to PwC, an employer can bank about £600 per company car through savings in tax and National Insurance Contributions (NIC) and, potentially, VAT. This is for a standard fleet that includes mainstream models such as a Vauxhall Corsa. The employee saves on tax at 20% and NIC at 11% and even when the company car tax is included will still save more than £970 annually.

Many providers are pinning their hopes on these types of schemes to increase the number of leases, but there are obstacles, especially in the current economic climate. There is no tax or NIC exemption available with cars in the way there is with childcare vouchers, for instance. Also the level of salary sacrifice people are asked to make might be difficult at a time when family budgets are tight. For the savings mentioned above an employee would have to give up more than £2,500 in pay.

Any scheme must also support an organisation's green and CSR strategy, in the same way as a Cycle2Work initiative does. It must also fit snugly into the existing benefits package.

In June, energy company BP extended its existing company car scheme to include a salary-sacrifice element, which means another 8,000 staff became eligible. Spokesman Robert Wine says it is too early to judge the response because although it is being rolled out now, it does not take effect until next year. The scheme is not compulsory - staff can still take a cash alternative.

Other companies introducing salary-sacrifice schemes for company cars include law firm Freshfields Bruckhaus Deringer, which has an arrangement with fleet company Tusker.

Meanwhile, BP's rival, BG Group, is considering introducing a scheme as part of a review of its company car programme run through Lex Autolease, part of Lloyds TSB. Head of HR services at BG Group Marc Reid says he is considering different options to retain a flexible benefits package. Currently about 1,000 staff are eligible for a car and the split is about 50/50 between those who take a car or cash. "Ours is still very much a perk fleet because we are competing for talent with the likes of Shell and BP," says Reid. "Health and safety issues are an important consideration, as is our carbon footprint, and we are looking at ways to incentivise staff to choose less polluting cars. As an energy company we need a positive approach to running a company car fleet."

Among the other fleet providers to start offering employers salary-sacrifice schemes this year are The Miles Consultancy and Zenith Provecta. Meanwhile, Matt Dyer, the new commercial director at Leaseplan, has made rolling out his company's salary-sacrifice product one of his priorities.

Zenith Provecta's group development director, Nick Sutton, says salary-sacrifice schemes provide employers and employees with a solution to bringing down CO2 emissions. He says the average CO2 level for vehicles ordered by his clients is just 114g/km, which is below the Society of Motor Manufacturers and Traders' average of 158g/km.

"The environmental and health and safety issues around asking people to drive for their work means we are seeing organisations return to the com-pany car or consider it for the first time through these types of salary-sacrifice schemes," says Sutton.

THE EMPLOYER'S POINT OF VIEW

- New technology

If employers like the sound of something, it normally happens. Business advisory firm Deloitte introduced a salary-sacrifice scheme for its 12,000 UK employees earlier this year and limits the choice of vehicle to those with emissions of up to 120g/km. An example is a Peugeot 107 three-door hatchback.

But Deloitte is also helping other employers to structure their salary-sacrifice and standard company car programmes correctly using a suite of fleet analysis software. Its Cartax Fleet Analysis Tools system assesses the best choice for a specific organisation and an individual employee.

"The vehicle choice list for every company should be based on complete whole-life costs from both the employer and the driver's perspectives," says director global employer services Mike Moore. "Firms often leave benefit-in-kind-tax out of the equation because they view it as a driver and not a corporate issue." The software advises whether outright purchase, contract hire or finance lease is the best option. "Making the wrong choice can lock the company and the employee into an expensive mistake for several years," says Moore.

More fleet car providers are adding tracking systems. One such system comes from Navman Wireless, which creates detailed mileage expenses reports at the touch of a button and exports directly into company accounts. Not only do bosses benefit from freeing up staff from compiling their mileage by hand, it is more precise and saves money because it eliminates the danger of employees 'rounding up' their miles. Last month it even introduced a new feature that allows drivers to 'toggle' between business and private mileage modes, so that fleet drivers can keep their own private mileage just that - private. "This new function is a real step forward in overcoming driver objections to vehicle tracking," says Steve Blackburn, European vice-president, Navman Wireless.

Another software product that appeals to employers is Licence Link from CFC Solutions. The web-based system was launched at the start of the year to help organisations routinely check car and van driver licence information. Basic driving licence details are entered into the system and HR teams or fleet managers can check them with the DVLA database. It reveals the number of penalty points, and alerts can be sent to an employer if there are changes to endorsements. The information will tell an employer if someone is allowed to drive or if a photo card is expiring. "The health and safety legislation and corporate manslaughter responsibilities now placed on employers mean it is vital companies can show insurers they are making the correct checks - and regularly," says CFC Solutions' Briggs.

Software is also being used to help employers reduce mileage costs when staff claim expenses for using their own vehicles. Rhondda Cynon Taf County Borough Council has reduced its mileage costs by more than 7% using an online, self-service system from expenses management company PremierEnvoy. Overpayments have been reduced by allowing staff to calculate their journeys to the nearest tenth of a mile using route-mapping technology. Employees can also track the progress of their expenses claims through the approval process. "The expenses system is more transparent and enforceable and has cut some of the administration burden," says Nick Jones, service director at the council.