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Contents

Chapter 1 – Introduction and summary
An outline of buy-outs, flexibility and the cost control pressures driving company car
policies, plus a summary of the main findings

Chapter 2 – Fleet acquisition and management
A summary of the main fleet acquisition methods used by the case study companies, as
well as the growing trend to buy out cars altogether

Chapter 3 – Eligibility and allocation
Details of how cars are allocated, along with eligibility, choice, and car users’ rights and
responsibilities

Chapter 4 – Cash allowances and flexibility
Approaches to cash alternatives, and trading up and down

Chapter 5 – Additional costs: insurance and fuel
A look at the other costs associated with the provision of company cars, including details
of fuel allowances for both company and private use

Chapter 6 – Tackling health and safety
An outline of companies’ current health and safety policies in relation to company cars
and the potential impact of the forthcoming corporate manslaughter law

Background

The provision of company cars has long been used as an incentive in recruiting and
retaining staff. The majority of large organisations provide company cars, either for
essential use or as a status reward or both. Figures on the number of company car drivers
vary, though it is apparent that the number of company cars has fallen in recent years -
the Department for Transport’s figures indicate that in 2004, 5% of household cars were
company-owned, a fall from 9% in 1992/19941.

In April 2002 the tax position changed from one based on size of engine and number of
miles travelled, to one based on carbon dioxide emissions.

Advantages of providing company cars
For the employer
it is a visible reward and confers status
it is recognised as an essential part of the benefits package for recruiting and retaining
quality staff
it is a controllable reward scheme that does not increase the wage and pension bill
(although there will be National Insurance implications for employers - see below - there
are no NI implications for employees)
with a restricted choice of vehicles, it can reinforce a particular image of the company
For the employee

or with the purchasing group. who want to use it as an employee benefit and incentive. contract hire is becoming more popular than purchase) distinguishing between the management of the policy and the overall strategy. This is especially valuable in companies with larger fleets where there are the advantages of economy of scale. who see it as a direct business expense and want to manage the cost. the traditional role of the fleet manager has virtually disappeared. with the function now performed either by an outside agency or from within the personnel group. the situation is much more complex and depends on other factors such as: the size of the company. less rigid approach to employment and reward allows for a more flexible system of benefits greater concern for the environment Considerations in traditional company car policies Who is responsible for company car policy? At its simplest. replacement. the nature of the business and what benefits are offered by its competitors the size of the fleet and whether the cars are bought outright or leased (because of its flexibility. Fleets of fewer than 20 are still almost always managed in-house.having a company car is very convenient as it removes concerns about servicing. wholly or in part. In reality. but even these smaller fleets are increasingly turning to outsourcing because of other advantages such as having replacement vehicles readily available. a company car still has a significant financial value. ownership of the policy may lie either with the personnel group. flatter organisations and more openness are antipathetic to cars as status symbols a new. In many organisations. to a specialist fleet management agency. which is independent of salary limitations If there are so many advantages. Outsourcing An alternative to in-house control of the car fleet is to outsource. why change? new tax changes have made a company car economically less desirable for some employees running a large fleet has become increasingly complex and costly for the employer new. The main benefits of outsourcing are: it is guaranteed to meet the business requirements of having a fleet of reliable and easily replaced cars . etc it is a visible reward and it confers status in spite of considerable tax implications (see below).

Company cars and contracts of employment Because the use of a company car may become an emotive issue.or dual-badge deal) and the incentive benefits of a much wider choice based mainly on value (although there may be some restrictions on inappropriate models) replacement policy . Status versus essential user The policy must clearly state the eligibility guidelines for each company car in either of these categories. Status cars: .outsource agencies are able to keep up to date with changes in legislation and with best practice. you have to decide on: model choice . it is important that the scope of its use is covered in the contract of employment. insurance and repairs whether the car user is required to make a contribution in return for private use of the car whether there are circumstances (such as extended leave or during a driving ban) when the vehicle may be withdrawn the car user's responsibilities in respect of the vehicle. leased. What to offer company car drivers Regardless of whether the fleet is company-owned. maintenance. tax. The contract should state: what type of vehicle the employee is entitled to whether it is available for private use and whether there are restrictions on its use who is allowed to drive the car when it will be replaced (typically based on age or mileage) who is responsible for the cost of fuel. It is also important to be explicit on the insurance cover provided. or supplied by an agency.in an approved car list you need to decide between the financial advantages of a limited choice of models (a single.the vehicle will be replaced after a stated number of years or a specific mileage or whichever of the two is reached first allowing all those entitled to a company car to trade up or down (within the approved list) with an appropriate salary adjustment offering a cash alternative to all drivers (see below) offering incentives for company car drivers to switch to other forms of transport (see section on green issues).

000 to 15. Having a Personal Contract Plan (PCP) to complement the cash allowance allows employees to continue having the use of a vehicle under similar conditions to their company car.000 miles. some of these plans include. for example.in a recent IDS study2. Basically. maintenance and insurance costs within the monthly payment.000 was more typical). Some. Some organisations are offering PCPs to all employees (not just to those with company car entitlement). with £30. Organisations offering PCPs can be found under 'Car leasing & contract hire' in the Yellow Pages. The choices are: extra salary (typically for status car drivers): this is normal salary for all purposes including tax and pension a cash allowance (typically for essential car users): this is not part of the employee's salary for the purpose of bonuses.000 being the typical level specific grade or position in the hierarchy. have decided to buy out their entire company car fleet. a PCP entails making payments over an agreed period of time to finance a car. extra money is generally given in compensation for the loss of a company car. Cash allowance schemes and Personal Contract Plans Many companies offer cash alternatives. pension etc and is subject to specific tax rules. the minimum qualifying salary ranged from £25. employers arrange for payments to be made through their payroll. while others. Alternatives to traditional company car provision The aim of replacing. However. existing company car provision with something different is to provide a scheme which is: cost effective for the company ie easy to run and economical (preferably costing less than the existing scheme) good for the company car driver (as a minimum.500. Essential-user cars: certain jobs eg in sales more than a certain number of business miles per year (again in the IDS study2. it seems that organisations have been reviewing their policies on cash alternatives in response to the tax changes (see below).000 to £49. The basics Although it is not mandatory. this varied from 3.000 to £35. . but not all.pay level . although 10.000 to 18. then having the option at the end of the period either to buy the car or start a new plan. For added convenience. instead of offering an optional scheme. either voluntarily or compulsorily. they should be no worse off) seen to be fair by other employees environmentally sound.

it is desirable for organisations to support environmentally-friendly initiatives. At the end of the period the car can be sold back to the leasing company with nothing more to pay. so specialist advice may need to be sought.Employee Car Ownership Schemes Some companies. have begun Employee Car Ownership Schemes (ECOS). whatever scheme is chosen. Employee consultation Ideally. ECOS allow employers to transfer the ownership of the car from the organaisation to the employees who are not taxed on the benefit of a company car. such as Abbey National. this may cause problems with motivation and staff retention. it must be explained fully so that company car drivers understand the reasons for the changes. Go to Vehicle Certification Agency's website Go to Society of Motor Manufacturers and Traders' website The government is also considering other proposals such as taxing the provision of workplace parking to encourage work journeys using public transport. as a result. The employee enters into an agreement with a leasing fiorm for the purchase of the vehicle over an agree period and milage. Consider whether it would be possible to do some of the following: encourage the use of greener cars (eg smaller and/or more fuel efficient) through your approved car list severely limit the provision of free fuel encourage the use of video conferencing etc in order to reduce the amount of travel to business meetings organise and support a car sharing system . Alternatively. to find out what their preferences are but. In addition to meeting their legal obligations. believe that a new scheme is solely a cost-cutting exercise. the employee can be offered the opportunity of owning the car by making a single payment. New cars can be checked on the Vehicle Certification Agency's website and older cars can be checked on the Society of Motor Manufacturers and Traders website. Green issues From 6 April 2002 the tax charged on the benefit of a company car is linked to carbon dioxide (CO2) emissions. employees should be consulted before changes are made to a company car scheme. If employees are not properly informed and. so long as the car is returned in an acceptable state. The tax rules are complex.

and develop green transport plans for employers. Congestion charging Congestion charging was introduced to London in February 2003. Workplace parking is an attractive benefit. Companies may need to make clear if they will reimburse employees for journeys undertaken for business into the central zone. but clearly an over-generous company car policy will have implications for the pressures on workplace parking. not only those with company cars. it brings together a range of over 40 groups whose aim is to provide real solutions to transport problems. They also publish a range of booklets and guides. cycling and walking. They lobby government. As an umbrella organisation. since this provision results in significant additional taxes for both the employer (in the form of National Insurance Contributions - NICs) and employee (in the form of income tax). Workplace parking This affects all drivers. it is essential to consider the tax implications. so the costs or problems of workplace parking should be taken into account when considering the overall cost of your company car policy. car fuel benefit has been based on a percentage of a set figure according to the car's CO2 emissions.provide a works bus or subsidise park-and-ride tickets give vouchers or loans to encourage the use of other forms of transport such as bicycles or public transport provide free (or pool) bicycles and safety equipment make good provision for cyclists by having secure and convenient bicycle parking areas. Transport 2000 is a national campaigning organisation dedicated to encouraging sustainable environmentally-friendly transport. . Since 6 April 2003. Tax on a company car is based on the value of the car and its CO2 emissions. Providing a parking space is not a taxable benefit but providing vouchers or reimbursement of parking expenditure is. seek solutions to transport problems that rely less on cars and more on public transport. Further information on income tax and NICs including an online company car and car fuel benefit calculator is available on the HM Revenue & Custom's (HMRC) website (see ‘Useful contacts’ below). Company cars and fuel as a taxable benefit When considering whether to provide company cars and fuel for private use. and shower and changing facilities for people who cycle to work.

Useful contacts HM Revenue & Customs (formerly the Inland Revenue) This section of the website gives information on calculating company car benefits.pdf INCOMES DATA SERVICES. References DEPARTMENT OF TRANSPORT.dft. London. Transport 2000 Organisations offering Personal Contract Plans can be found under 'Car leasing & contract hire' in the Yellow Pages. You can also see their publications on company cars.gov. . IDS. (2006) Company cars & business travel.uk/stellent/groups/dft_transstats/documents /page/dft_transstats_039335. IDS HR Study 817. Available at: http://www. AA website It is possible to check your own tax position on this website. Section 6: Other factors affecting travel.