Employee car ownership - the best option?

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Swapping the company car for cash may seem like an opportunity not to be missed but as many employees have found all that glitters is not gold; Nick Phillips of Provecta takes a closer look at employee car ownership.

When the car was chosen for you, it was easy.

Now employees need to be sure they are getting the best deal. Finding a desposit can run into several thousands of pounds and together with the expenditure of insurance, servicing, maintenance and repair, owning a car can be a costly expense and you may find yourself missing the convenience of the company car.

Employers too have had their fingers burnt by cash-for-car schemes. On the face of it, ridding the business of the administrative burden alone makes offering cash an attractive alternative. Add in the spiralling costs and tax implication of company cars and it seems a simple enough decision to simplify the whole system with a cash allowance.

However, ill-prepared policies can leave employers with unexpected problems. Tax and travel expenses in particular have proved to be a bigger expense for some companies than they had originally calculated.

Up until today we have been able to claim VAT back on business mileage fuel and other business expenses. However, the European Court of Justice recently declared the British tax rebate system on staff mileage expenses - worth an estimated £250 million a year to be illegal.

They stated the VAT reclaim system of car travel allowances, where expenses are calculated on a cost-per-mile basis, did not guarantee that employees were using the fuel for work purposes. The lack of transparency meant that EU rules could not allow firms to reclaim the VAT on fuel, currently worth about 16 pence for every litre of petrol, from the Government.

Given all of these problems, some employers still give a cash allowance in lieu of a company car, particularly to perk drivers. However, a new concern has arisen for employers, in the shape of the corporate manslaughter bill. With the very real threat of company directors on trial for serious accidents involving their employees driving on company business, employers need to take a very close look at the cars their employees are using. Once ‘car allowance’ appears on an employee’s payslip, liability falls on the employer.

If the cars are not found to be ‘fit for purpose,’ poorly maintained or that the drivers have not received adequate instruction or training, then companies will be vulnerable to prosecution. Strict guidelines already exist for drivers on company business and employers are expected at the very least to have a suitable policy to demonstrate their duty of care to employees.

Giving employees full control over how they spend their monthly car allowance is clearly leaving employers vulnerable. The cash therefore has to be given with certain constraints attached to it. Employees may feel that they should spend the cash as they wish, but by demonstrating that control is needed to protect employee and company, this reluctance can easily be overcome, particularly if the control systems put in place also help employees and take the risk out of car ownership.

What is needed is a viable alternative that works like cash, but maintains the duty of care employers have to workers. There are various ways of doing this, the simplest and most effective being a system of Employee Car Ownership. This works by giving employees their cash allowance to spend within a company-selected scheme.

The choice of cars is usually much wider than that on the company car scheme, with significant discounts over high street prices. A lump sum deposit is not needed and a fixed monthly payment covers all servicing and maintenance, including tyres and breakdown cover. The payments are protected against the driver leaving the employer, and the final value of the car is guaranteed, giving the owner various options at the end of the contract. The whole system has the feel of a company car, without the personal tax implications.

The company is protected because they know the vehicles will be fit for purpose and well maintained, their costs are fixed and they no longer have the administration burden of a fleet of vehicles. Employees are protected because they are driving their choice of vehicle and they know exactly how much the car is costing them each month.

As the business world changes, companies need to adapt. In order to run their businesses efficiently costs have to be kept to a minimum. But costs are not the only factor; particularly where staff welfare is concerned. The provision of cars is perhaps the only business cost where both sides can gain if the right system is put in place.

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