Monday, August 9, 2010

Are company cars "appreciated by all"?

I was intrigued by David Cameron's reference to company cars in an interview published in the Sunday Times. He was drawing an analogy between what the Government is doing and the methodical turnaround of a failing business. It was making a lot of sense to me.

Then about half way through he noted that:
"the next step for the spending review is to identify the spending I'd describe as "acceptable in the good times, unaffordable in the bad times". To continue the business analogy, employee benefits such as company cars might fall into that category. They are appreciated by all, but if you're suffering losses for the third quarter in a row, you've got to drop them."
In principle I can follow the logic although keeping employees onside is also crucial. Indeed the analogy breaks down as cutting the provision of company cars would actually represent a cut in the employment costs of the business. If the failing business cannot afford to remunerate its workforce it should not simply cut one element of the remuneration package.

My second concern with the PM's statement was how out of date is the sentiment behind it. I thought most employers had stopped providing company cars as a perk/benefit some years back.

It was 1994 when the basis for the tax charge was changed to focus on the list price of the car (and will often be set by reference to 35% of that figure). As the increased tax charges hit employees' pockets so company cars ceased to be an attractive employment 'benefit'. The system changed again in 2002 to focus on the CO2 emissions of the car. And these days few employees appreciate the provision of company cars as a perk, once they understand the associated tax charge - other than perhaps those employees with very low CO2 emission vehicles.

The benefit in kind charge for a company car is a set % of the 'list price' ranging from 10% for cars with emissions upto 120g/km, upto a maximum of 35% for cars with emissions of 230g/km. The relevant % will be applied to the full 'list price' including including all the manufacturer options and any other extras. Thus, as the vehicle cost increases so does the tax liability.

I'd be interested to know if many people still value the old company car perk. Please let me know.

In the meantime, you can find the the CO2 emissions for most cars using the SMMT website. Another useful site for finding out the changing tax charges on company cars is UK Carline.

6 comments:

  1. The % of list price now starts at 5% for cars with CO2 emissions of 75 gr/km or less

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  2. I still think a company car is a valuable part of a remuneration package. It relieves the employee of the need to find the capital to buy a car, and gives them peace of mind that all running and standing costs are taken care of. I am happy to pay a premium for that.

    But I think it is outdated thinking to suggest that a company car is a "perk". For most employers it is a carefully calculated employment cost and the employee's salary will have been set with that in mind. Let's not suggest that it is a sort of freebie!

    Now employer-provided fuel is a totally different matter. I advise all my clients to buy their own fuel, the tax scale charge is utterly penal.

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  3. Suppose you have a company director with his secondhand Jaguar. He claims FPCS when using the car for business. Supposing he has a daughter/nanny/mistress (delete as approriate!). Why not give Mr Director a small brightly coloured low Co2 rated runabout company car. This could be used by said daughter/nanny/mistress at a small BIK cost. As the insurance for say a daughter at university could be over £1,000 pa it can prove most cost effective.

    I agree with Nigel re the fuel unless the person does a very very high personal mileage.

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  4. Just re-reading this with my business hat rather than tax hat on, it is either a very bad analogy or Mr C has a very poor understanding of business.

    1) As you say Mark, this would involve effectively cutting the employees remuneration. Employment law issues would abound, staff moral would be zero and the decent staff would be looking to jump ship.

    2) Mr C has obviously never tried to terminate a lease early. Or for that matter sell a car fleet in a hurry at an auction.

    3) The sales staff will now not have cars and will do what exactly to visit customers? They probably won't have a second car lurking in their garage.

    4) If we sold the cars to the employees we would have to lend them the money and potentially pay them FPCS rates as well.

    So Mr C is saying that he is going to introduce measures that are:

    1) Unfair.

    2) Maybe unlawful.

    3) Unworkable.

    4) Don't actually save money.

    5) Be counter productive.

    Par for the course I guess.

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  5. A company car for my clients is not seen as a perk but an integral part of remuneration, the ability to habe transport used extensively for business use and with all the wear and tear that goes with it. The loss of a company car has personal issues af affordability and NCB, plus repairs. As many clients use their cars for work purposes in the main, the 40/25ppm is not sufficient. It is a case of doing the maths. There are some relatively high spec cars now with low emmissions, low enough that a £1500.00 tax bill is cheap driving when companies can pull on discount servicing, insurance and repair work. Fuel too can be benefial - as said run the figures, guessing could cost your client.

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