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All things Pharma

Cash or car?

Which company benefit drives us?

As the cost of living continues to escalate at an alarming rate, employee perks, such as a company car, can make all the difference. Interestingly, respondents to this year’s Pf Company Perception, Motivation and Satisfaction Survey voted company car policy as one of their top ten motivations, though only 45% were satisfied with this aspect of their remuneration. Paul Harrop, Sales & Marketing Director, Daimler Fleet Management, looks at how cost-cutting and environmental pressures are forcing companies to change their policies.

When changes to company car Benefit in Kind (BIK) taxation were introduced in 2002, many companies took the opportunity to review the value of the company car as an employee benefit. The reforms were fundamental, with a change from taxing engine size to taxing CO2 emissions and removing preferential treatment for those who drove high business mileage.

Employees who were financially penalised were attracted towards cash for car options to reduce their BIK tax burden. Employers also saw advantages in a salary alternative, such as potentially reduced administration from ceasing to manage a company fleet, removal of Class 1A National Insurance paid on the benefit the driver receives, and a drive to diversify their employee benefits packages.

While predictions about the decline of the company car proved to be unfounded, there have been changes and a diversification in the funding and composition of corporate fleets:
• There is a greater use of personal finance and employee car ownership schemes.
• Diesel derivative vehicles, because of their comparatively low CO2 emissions, have expanded in number within company fleets.
• Car provision is a choice within a wider and more sophisticated range of employee benefits.
• Duty of care issues are increasing the focus of attention at board level on building safety into fleet vehicle policies.

Duty of care responsibility falls to the organisation as a whole, with the directors being most at risk for legislative breaches. Although the law won’t blame individual managers for accidents, it could impose unlimited fines for a company “if the way in which any of its activities managed or organised by its senior managers causes a person’s death and amounts to a gross breach of relevant duty of care owed by the organisation to the deceased”.

An integral part of the Health & Safety at Work Act, Duty of Care requires an employer to be responsible for employee health and safety while at their place of work. Any vehicle used by an employee during the course of their work is defined as a ‘place of work’.

Assessing the options

Cash for car calculations are complex and to ensure employees taking the salary alternative are treated fairly, employers need to consider the cash allowance from the employer in lieu of company car, any BIK tax saving and the business mileage reimbursement.

Given the choice between cash or car, an employee needs to calculate cash received in lieu of a car and payments (including tax) for both scenarios, as well as the servicing, maintenance and running costs of a vehicle. A fleet management supplier will use a discounted cash flow (DCF) module to help companies to analyse whether a company car or a cash alternative is the best option.

Company involvement in assisting staff to acquire vehicles through private finance arrangements has to be handled carefully because poorly-established schemes may fail to remove BIK liability from the employee. HM Revenue & Customs (HMRC) offers the following advice to a company: “In order to review a scheme, you will need to see all the documentation which could include:
• A document or brochure outlining the scheme
• Scheme rules
• Agreements between employee and employer
• Agreements between employee and finance provider
• Agreements between employee and car provider
• Correspondence and agreements between the employer and any third parties involved, such as the finance provider and/or the car provider
• Instructions to managers about the operation of the scheme.”

By divesting itself of its car fleet, a company does not entirely drop its administrative responsibilities for work-related driving. As the HMRC guidance implies, schemes have to be rigorously structured and monitored for effects brought about by any new tax changes. This may cause particular pressures on those tasked with fleet administration when it is not their primary job function. Fleet management suppliers have the expertise to assist companies in negotiations with their local tax office, and their support can be invaluable.

Other points to consider include:
• Fuel benefit is offered by the employer is taxable as BIK based on CO2 emissions. If a pay and reclaim system is in operation, then keeping within the HMRC’s Approved Mileage Allowance Payments (AMAP) when reimbursing the employee for using a private vehicle for business purposes ensures the employee will not have a tax liability. Tax-free fuel reimbursement levels are a cause of current controversy. Unlike the Advisory Fuel Rates (AFR) for company cars, which have risen since 1 July 2008, reflecting the rise in fuel prices, the Approved Mileage Allowance Payments (AMAP) for business mileage in private vehicles have remained unchanged at 40p per mile for the first 10,000 miles and 25p per mile thereafter.
• Any cash for car scheme with employees using their own funds to acquire the vehicle means that they will incur an extra debt they wouldn’t have had with a company car. This can be an issue if they already have outstanding loans, and may bring the employer into contentious areas such as determining employee credit worthiness for the benefit of the finance provider.
• Personal finance schemes may not be suitable for companies with a high staff turnover, where leavers find themselves responsible under contract for a vehicle they may not require.
• In addition to the financial factors, it is worth considering the value of a company car from an HR perspective as a motivational HR tool. A company car, typically a prestige model, attracts high quality candidates and retains specialist and highly skilled employees. The benefit provides hassle free motoring for the employee, with servicing, maintenance, insurance, road tax and other issues being handled by the employer.

Finally, turning to operational issues, duty of care and a vehicle’s fitness for purpose are critical areas to evaluate.

Duty of care

Most companies need employees to drive for business requirements, including sales and technical support visits to customers. Employers have a duty of care for all employees driving on company business, regardless of whether they use a company car or a privately owned vehicle. Vehicles must be roadworthy, insured for business purposes and legal in every respect.

It is generally accepted that it is easier to achieve higher levels of control with company cars, particularly over the crucial area of servicing and maintenance. Failure to adequately monitor vehicles and work-related driving policies can leave companies vulnerable to prosecution under Health & Safety legislation, including the Corporate Manslaughter Act in the case of accident fatalities.

Fitness for purpose also covers many other aspects:
• Is the vehicle fit to perform the job for which it is intended?
• Does it have adequate storage and load capacity?
• Is there a requirement to carry client passengers?
• Is the vehicle suitable for the average business mileage it will cover?
• Does the vehicle fit in with the company image and environmental policy?

Duty of care issues have made many employers reconsider their policies in favour of retaining the company car. At the same time, there have been a number of developments that have changed negative perceptions about the restrictiveness of company car policies geared towards low CO2 emission vehicles:
• Manufacturers are producing an expanding range of low CO2 emission vehicles that is becoming increasingly attractive to businesses and their employees.
• Volatile fuel prices are focusing attention on fuel efficiency of greener vehicles.
• There is an increasing acceptance of the need to reduce the environmental impact of motor transport.

Daimler Fleet Management UK Limited (DFM) currently operates a UK fleet of over 58,000 vehicles, which forms part of a pan- European fleet approaching 470,000 vehicles. DFM is 8th in the Fleet News FN50 league of the UK’s contract hire providers – see www.daimlerfleetmanagement.co.uk.

For media enquiries, please contact: Ronnie Gunn, MPS & BBI International Ltd, tel.  01494 452600  01494 452600 , email ronnie.gunn@mpsuk.co.uk.

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