Do company cars still appeal?
Article Date: Feb 06 2006
They’ve long been recognised as a key component in a tempting benefits package and are considered a fitting display of prestige, but company cars have been losing their sheen among both employers and employees of late.
The number of directors and employees driving company cars in UK has fallen drastically over the last few years, plunging at the rate of more than 1,200 a week to an estimated 1.3 million. Accordingly, there’s been a rise in the number of businesses paying for the business mileage of employees in their own private vehicle instead.
Companies that generally prefer to buy their own company cars and vans are chiefly profitable ones with healthy cash flow, as they can claim the cost of car purchase through capital allowances, reducing taxable profits. Tax and National Insurance contributions related to company cars – previously linked to the age of the car and the number of miles driven on business – are now correlated to carbon dioxide emissions, meaning cleaner, fuel-efficient cars should now be the choice of the cost-conscious corporation.
Benefits package
One reason for the company cars’ loss of popularity may be because organisations don’t realise that a car can prove to be more of a benefit than many first think. ‘Employees often go for the ‘easier’ cash-for-mileage option instead, believing company car tax is too expensive and too complex,’ grumbles David Harnett, director of vehicle-management specialist FleetLine. ‘However, if they still need to drive for business they may not have actually considered the real cost of running their own car.
‘Take the example of a taxpayer paying 22-per-cent on their own 2.0-litre diesel car. They could be looking at over £5,600 in annual running costs – including depreciation, insurance and maintenance. If the vehicle was a company car, all they would pay is a £717 annual tax bill.’
Even with company cars taxed as a benefit in kind for most employees, there are some special cases: directors are almost always taxed, regardless of what they earn, and employees earning less than £8,500 a year do not pay tax on the benefit. Another tax-efficient option is to have a car pool, either leased or owned, as pool cars are not taxed, but they must be used by more than one employee and cannot normally be kept overnight at an employee’s home.
For businesses that don’t want or need to maintain a fleet, or even any company-owned cars, there are two alternatives: car leasing is a longer-term substitute and car rental provides a convenient short-term choice. Obviously, both leasing and rental remove the considerable initial purchase costs and can add useful extras into the bargain such as maintenance and other services.
Kept on a lease
George Screeton of Carleasinguk.com, where the shortest leasing term is 18 months, is adamant that the costs are lower with leasing than at short-term car rental companies, which he admits have the advantage of increased flexibility. ‘The cost is significantly cheaper on a longer-term contract,’ he claims, ‘and we can offer prices anywhere between £100 to a £2,000 a month. And you can normally choose from a vast array of models, from Ford Fiestas and Fiat Pandas to Bentleys, Maseratis and Alfa Romeos.’
Car hire ire
Car hire is clearly a more flexible option than long-term leasing or car purchase. With Britain’s operators thought to be the best developed in the world, regular businesses users can generally arrange between five and ten per cent off normal hire rates, leading to costs from around £15 per day for small hatchbacks rising up to £60 or so for the prestige marques. All hire firms strive to offer a wide geographical spread of locations for collecting and depositing the vehicles, and periods of rental range from a day up to a month.
However, although there is now an abundance of cheap car hire firms upon which many smaller companies rely, John Leigh, chairman of the British Vehicle Rental and Leasing Association warns that car manufacturing problems and rising raw material costs mean the hire prices are expected to rise.
