Fleet News negotiation article

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Author: Colin Tourick. Published by Fleet News, May 2020

Now more than ever, we need win-win solutions

We sighed simultaneously, looked up and smiled wryly. They had just announced yet another hour’s delay to our flight. So I did what no Brit ever does: started talking to a complete stranger.

Turned out he was an American businessman going home at the end of a work trip. “Successful?”, I asked. “Definitely”, he said, with a broad smile.

He told me he owned a mediation organisation. “Matrimonial? Business disputes?” I asked. And he said no, he only worked with governments, helping resolve disputes between nations. He’d been doing this for thirty years.

“Well, we’re not going anywhere for at least the next hour”, I said. “Any tips you can give me?”

He smiled and said he didn’t need an hour. “Most people go into a negotiation saying what they want but rarely explain why they need it. If I’m thinking about my wants and needs I’ll negotiate hard. You’re doing the same. It’s a zero sum game. What I gain you lose. However, things change if I tell you why I need a particular outcome. Human brains are geared to finding solutions. You’ll start thinking about my needs as well as your own. You’ll get creative. Maybe you’ll realise there’s something you could offer that we haven’t discussed that would deliver value to me, cost you little and make your overall offer more acceptable. Two brains are now working on solving my problem. That’s the key to dispute resolution.”

I’ve often had cause to thank this stranger for his sage advice and thought about him during the Fleet News webinar on how fleet managers are managing during the current crisis. Many participants had vehicles parked up, with drivers furloughed or working from home. So they were paying for vehicles they were not using.

I know that some fleet managers have been trying to negotiate payment deferrals with their leasing companies over the last few weeks, with varying degrees of success.

So with those words of sage advice still in my ears, I will use the rest of this article to set out, for the benefit of fleet managers, some of the issues facing leasing companies at present, and vice versa. By understanding each others’ needs, rather than wants, perhaps you can work together to devise tailor-made solutions to alleviate some of the pain that so many businesses are feeling at present.

Dear Fleet Manager. I’ll assume that yours is not an ‘essential’ business in a ‘keyworker’ sector; you lease your vehicles on 3-4 year contract hire with budgeted maintenance; many are standing idle; your business has stalled because of the lockdown; you have claimed all you can under the government’s schemes and need to preserve cash.

Your leasing company is faced with problems on all sides. They make a tiny margin on each lease and rely on volume to make a profit, but new business has dried up. They also hope to make a profit when selling ex-lease vehicles, but used vehicle prices are tumbling. They know that some of their clients will not survive the crisis, large numbers of vehicles will be returned and they will make a loss when selling these. At the moment your leasing company is saving money on the maintenance on your laid-up vehicles, but those savings will be dwarfed by the hit they’ll take from the fall in used vehicle prices. And the FCA’s proposal to freeze personal contract payments will hit them hard, as PCP and PCH have been growth areas for leasing companies in recent years.

Leasing companies are highly-geared: lots of debt, not too much equity. It doesn’t take much of a downturn to damage their capital. Whilst many of them belong to larger groups – banks, motor manufacturers, motor dealerships – those businesses are suffering too. So when they insist you pay rentals for vehicles that are standing idle, they’re doing so from necessity.

Dear leasing company account manager. When your client comes to ask you for help over during the crisis, they are doing so out of necessity at a time of stress.

Fleet managers tend to be busy people but the lockdown has added new burdens such how to ensure driver wellbeing is maintained despite workload increases (in ‘essential’ businesses); dealing with furloughed drivers’ concerns about being charged benefit in kind tax for cars that can’t be driven because of lockdown, the sanitisation of multiple-shift vehicles between shifts, and so on. And meanwhile their finance directors are insisting they find ways to reduce fleet costs – often the third largest item of expenditure after people and premises costs – and in particular to preserve cash.

If you can find a way to help them they’ll be more likely to be around in future to pay your rentals and order new cars.

No-one knows how long this crisis is going to last. I think it will take more than a year for stability to return, though it will be a new normal with lower GDP. Once we’re out of this, leasing companies will hope to resume trading normally. People tend to remember those who help them when times get tough. Goodwill is a fragile thing: hard to win, easy to lose.

So my first piece of advice is for both parties to talk. Don’t just set out what you want but why you need it. Seek out ways – creative ways – to help meet each others’ needs. It’s not a good time to dig your heels in and be inflexible.

If I was a fleet manager that was not an ‘essential’ business, I wouldn’t now be asking my leasing company to recalculate my lease rentals based on lower mileage. Any saving would be marginal and would be outweighed by the reduction in used vehicle values the leasing company would want – need – to build into the rental calculation. I’d ask them to reduce my rental payments for the next three months by a very significant percentage and I’d agree to pay back the shortfall in the last three months of the lease.

Leasing companies are about to suffer pain, so I’d also offer now to extend all leases due to end in 2002 by six months, and in 2021 by three months, with rentals unchanged, and give each party the option to extend for a further three months. That would help me – I certainly wouldn’t be adding new vehicles to my fleet any time soon – whilst also helping the leasing company – allowing time for the used vehicle market to recover.

The real problem for a fleet manager comes when staff are made redundant and their vehicle is simply no longer needed. No-one is in the mood to pay early termination fees at present, but the leasing company needs these if it is to clear its books. So, if I was a fleet manager I’d ask for these payments to be deferred by 9-12 months. Yes, I’d accept the liability, but I’d want to preserve my company’s cash during the crisis. And the quid pro quo for this? I’d need to find something to offer that the leasing company would value and that I can afford.

So here’s an example.

Leasing companies spend an awful lot of time, effort and money whenever they pitch to win a new client or to retain an existing one. So as a quid pro quo for deferring the payment of early termination fees, I’d offer them my loyalty – a commitment that for the next three years they will win all of my business. If they don’t currently have sole supply of my fleet I’d guarantee to order from them every time one of their vehicles comes off lease. I would of course want to build in some safeguards here to ensure that rentals don’t go sky high (recognising that rentals are likely to go up anyway because the recent reduction in interest rates was miniscule compared to the sharp reduction in used vehicle prices we’re about to see).

It’s time to have a really good conversation with your leasing company.

Fleet World article

Making the most of lockdown: Key advice for fleets

Colin Tourick FICFM on how fleets can best spend the coming weeks and months in lockdown to good effect.

It’s April, the Chancellor has delivered his Budget and in a normal year I would now write an article about how the Budget will affect company car and van fleets. However, the coronavirus crisis is having such an overarching effect on everyday life that I feel it would be wrong to spend too long now discussing the Budget.

So let’s get that out of the way quickly so we can concentrate on more pressing matters.

The Chancellor froze company car Benefit-in-Kind tax rates for 2023/24 and 2024/25 at 2022/23 rates (hooray!), fuel duty was frozen again, plug-in car and van grants were extended to 2022/23, £500m was committed to increasing the number of rapid charging points, the inflation-linked increase in VED was confirmed and – broadly – the fleet industry drew a sign of relief. Plenty of Budgets have been uncomfortable for fleet managers. This wasn’t one of them.

Let’s turn now to coronavirus and the current lockdown.

There are always winners and losers at a time of national crisis. The winners today include supermarkets, delivery services, the private medical sector and companies that produce hand sanitiser and toilet paper. The losers include entertainment venues, retailers, manufacturers, conference organisers and many other businesses. If you’re amongst the winners you may well be rushed off your feet as your company ramps up to meet an unprecedented level of demand. If you’re amongst the losers, many of your drivers may be sitting at home with little to do.

These are all short-term phenomena. The virus will pass, people will go back to work, life will slowly return to normal. But it’s unlikely to be the normal we knew before. Some businesses will find their businesses boom – psychotherapists and divorce lawyers come to mind – but others will have been badly damaged by the downturn in business. Consumer confidence will have declined, government debt will have ballooned, there will be inflationary pressures and many people will be more interested in repaying debt, rebuilding their savings or looking for a job than in going out and spending money.

And let us not forget the other factor that hasn’t gone away: Brexit. I cannot imagine that in their wish to rebuild their economies as quickly as possible, the EU will be in the mood to deliver much by way of concession to the UK’s Brexit negotiators.

So, without wishing to be unduly negative, it’s probably fair to say that for many businesses the next year or two are likely to be quite uncomfortable. There will be pressure to do things more effectively, efficiently and at lower cost. And, as fleet costs are often the third largest overhead for many businesses after staff and property costs, it’s fleet managers who are going to be called upon to deliver those efficiencies and cost savings.

So let’s assume you’re a fleet manager sitting at home with rather less to do than normal. How best to spend the next several weeks – or months – until this crisis has passed?

Here are some suggestions I have been giving fleet managers:

  1. Clear your desk. You know all of those things that have been sitting on your desk or in your inbox for ages that you never had time to get around to? Good news, you have some time. Deal with them. At least that way when you get back to the office you’ll have a clear desk and a clear inbox.
  2. Redo your budgets – they’re out of date. The good thing is that you’re saving money on fleet costs (fuel, servicing, etc) at the moment. Indeed you may continue to save fleet costs once the crisis has passed if demand for your company’s services falls. However, used vehicle prices are falling which means that either you’re going to get less for your cars when you sell them or your leasing company is going to lower their residual values when calculating their rentals. Time to redo the numbers.
  3. Research new areas you had not yet considered, where you might reduce costs or increase efficiency. A decent fleet management system to replace all of those spreadsheets? A telematics system to help you manage your fleet more effectively? A better fleet reporting system? An automated mileage reporting or fuel cost management system so you can that would allow you to move away from all those bits of paper – and give you decent management information in the process? You can research all of these and more online, from the comfort of your home.
  4. Start benchmarking. There is plenty of fleet cost data available online. You should be able to benchmark many of your fleet costs from the comfort of your home.
  5. Get studying. Sign up for one of the Institute of Car Fleet Management’s excellent courses and get yourself a qualification. The ICFM (now part of the Association of Fleet Professionals) have stopped running face-to-face training for now but they have a range of online courses.
  6. Work out what value your fleet policy is delivering to your company and your drivers. Some of your cars are perk cars which, I know, deliver non-financial benefits to drivers, but let’s concentrate here on the financial side. For each car, calculate the cost to the employee of each personal mile driven. Some of those costs will be huge. Time to have a chat with them about foregoing their car and receiving a pay rise instead? Both the company and the driver could save money.
  7. Then do the same sums for your ‘business use’ cars, but this time work out the cost to the company per business mile. Once again, some of those costs will be huge. Time to look for a different solution?

This period offers a golden opportunity to do the things you always said you’d get around to if only you had the time.

Fleet World article

Fleet Finance: “It’s a tough time to be a fleet manager”

Over the years I must have read that sentence in the trade press dozens of times, usually when some aspect of government policy was having an impact on company vehicles. Truth is, it’s never been a particularly easy time to be a fleet manager. Government policy aside, fleet management is a multi-faceted, complex and specialised area of business, and even the most highly experienced fleet manager will tell you they’re always learning something new.

But there’s no question about it: the landscape for company vehicles now is very confusing. I’m sure that some fleet managers will be feeling nostalgic for those days when if you ran a fleet of diesel-engined cars funded on maintenance-inclusive contract hire you were almost definitely doing the right thing.

The BVRLA’s recently published Industry Outlook 2020 is a concise exposition of the key issues currently occupying the minds of the people who run daily hire, leasing and fleet management businesses.

It was compiled with input from 20 leading experts from across the fleet industry. The BVRLA is the industry’s trade body and its members are responsible for more than five million vehicles in the UK, including one-in-eight cars and one-in-five vans. Whilst the report is primarily written for the benefit of BVRLA members, its members’ concerns are also fleet managers’ concerns, making this report required reading for fleet managers.

As the report says – and fleet managers know – the sector is facing challenges.

Cars are becoming increasingly connected and are generating vast amounts of data. However, little of the value of this data has been reaching fleet managers, largely because the necessary deals have yet to be sorted out between the manufacturers, leasing companies and end-user fleets to determine who will control this data. Leasing companies would love to access vast amounts of real-time data and would no doubt find all manner of innovative ways to package it for the benefit of their clients. Sadly, this innovation is being stifled at present.

Demand for electric vehicles is increasing and is likely to increase sharply from 6 April when the 0% Benefit-in-Kind tax rate is due to come into effect, once rubber-stamped in the Budget. When your drivers realise they can have company cars without paying any tax, they will really start to look seriously at EVs. However, there is already a problem with the availability of such vehicles, particularly upmarket models, and this will not materially improve in 2020. And the charging infrastructure is still a problem. Too few charging points at home, at work or in public places.

Many fleet managers have been caught in a cleft stick: on the one hand they have drivers for whom the word ‘diesel’ has become toxic, yet Euro 6d-TEMP and RDE2-compliant diesel cars are remarkably clean, cost less than comparable electric vehicles, deliver great mpg and have lower emissions than most comparable petrol-engined vehicles. But can they make a comeback in the minds of drivers?

The relentless increase in Benefit-in-Kind tax rates has driven many company car drivers – particularly low-mileage perk car drivers – to ditch their company cars in favour of cash allowances. Some of these drivers use their allowance to pay monthly for cars on maintenance-inclusive personal contract hire or personal contract purchase, so these cars are being professionally managed. But others are simply buying used cars or using existing family cars, leaving fleet managers trying to ‘manage’ grey fleet cars they don’t control. Nightmare.

Mobility solutions have been touted for many years but we are a long way from the promised vision of a fully integrated system that can take an employee from A to B using the optimal mode of transport at the lowest after-tax cost for both the employer and the employee and with the lowest level of emissions.

In three years’ time the situation should be very different. The EV supply issues will have been sorted out; there will be a lot more charging points in place; there will be many more data-driven solutions available to help fleet managers and drivers; diesel may have come become sufficiently acceptable again to be viable for high-mileage drivers for whom EVs aren’t an option; viable mobility solutions will offer real alternatives to the traditional company car and – hopefully – we will have a stable tax environment where once again we will know what is happening with company car tax four years in advance.

However, none of this helps fleet managers decide how best to fund or manage company vehicles in 2020.

My suggestion therefore is that they should think of the next couple of years as an interim stage where they need to find solutions that will work until we arrive at a brave new world in 2-3 years’ time. The question, therefore, is how to do this. In other words, what can a professional fleet manager do now that will keep costs as low as possible?

I think the solution is to be found by deciding car by car, driver by driver, the optimum funding solution.

Across-the-board funding solutions such as ‘contract hire for all’, which worked back in the day when BiK rates were lower, simply don’t work anymore. Some of your drivers cover much higher levels of business mileage than others. They may pay tax at a marginal rate of 20%, 21%, 40%, 45% or 46%, depending on their levels of income and where they live in the UK. Contract hire will be the ideal solution for some, a company-organised PCH scheme will be best for others and an ECO scheme for others still, whilst some with perk cars may indeed find cash allowances deliver the optimal solution.

Blended contract hire/ECO schemes have been used for years by some larger fleets to make huge savings. Now, the optimum solution requires a blend of contract hire, ECO, PCH/PCP and cash allowance. This is, actually, achievable, because the decision about which solution works for each employee is a simple matter of mathematics.

Ask your leasing or fleet management company to do the sums for you. As the BVRLA Industry Outlook highlights, those companies have been investing heavily in consulting solutions. They should be able to help you choose the optimal funding method for employees changing their cars in 2020. And by the time you come to replace those vehicles, things should be a lot easier.

Company car BIK tax system is unfair and unjust

Published in Fleet News January 2018

Open letter to the Chancellor: “Company car BIK tax system is unfair and unjust”

Dear Chancellor of the Exchequer

The current company car benefit-in-kind (BIK) tax system is unfair, unjust, doesn’t deliver on the Government’s environmental policies and causes problems for employers.

The system is unfair because it requires people to pay the same amount of BIK tax regardless of the benefit they obtain. If two colleagues do identical jobs in identical company cars, but they drive 20,000 and 2,000 private miles a year, the latter will pay 10 times more for those private miles. The tax rules say this is fair because the car is ‘available for their use’. Well, quite a lot of things in life are available for use – Eurostar, Wembley Stadium and my local Italian restaurant come to mind – but in every other case we’re only expected to pay when we actually use these things, not simply because they happen to be there. 

The system is unjust because you have just increased by 50% the planned tax rise for drivers of diesel vehicles from next April. This is just a £365 million tax-grab from company car drivers that will have no impact on the environment.

The system fails to meet your Government’s environmental policies because it encourages employees and employers to abandon diesel and move ‘back’ to petrol, reversing years of excellent progress in reducing CO2 emissions. 

CO2 for newly-registered cars run by British Vehicle Rental and Leasing Association (BVRLA) members has risen – yes, risen – for the first time in years, as a result of your vilification of diesel and without regard for the fact that Euro 6 engines are much cleaner than Euro 5. 

The new optional remuneration arrangement (OpRA) rules further undermine your environmental policies, because by taxing an employee on the cash allowance they are entitled to receive rather than the BIK tax on the car they actually choose – as you will if that generates a bigger tax liability – you remove the incentive to choose a low-CO2 car.

As if all this wasn’t bad enough, the current system of sharp tax increases can encourage employees to take cash allowances rather than a company car. But it is easier for a leasing company to ensure a leased car is properly maintained, repaired, MOT tested, etc, than it is for an employer to manage a similar process for grey fleet cars. 

I’m sure you have people designing a new company car BIK system. Here are some suggestions to consider:

  1.  Make the BIK tax charge reflect the actual benefit to the employee. There are several options; my favourite is to require the employee to certify whether their private mileage has been minimal (say, under 2,000), modest (2,000-5,000), high (5,000-8,000) or very high (more than 8,000). Flex BIK to reflect private use. 
  2. Scrap the 1% increase in the diesel supplement. It is grossly unfair. 
  3. Reverse OpRA. If someone takes the cash, tax them on that allowance. If they take a company car, tax them on the benefit-in-kind. 
  4. Change the ‘appropriate percentage’ for zero emission cars. It is daft to have a system that will rise from this year’s 9%, to 13% next year and 16% the year after, then reduce to 2%. What message does that send? If you want to encourage the take-up on new EVs, change the percentage to 2% from April 2018.
  5. Fix appropriate percentages. The current system increases BIK by more than inflation every year. If I had chosen a 105g/km petrol car early in 2017, I’ll have been taxed at 20% this year, rising to 26% by tax year 2020. That’s a 30% increase. Instead, set appropriate percentages for the duration of the use of the car. If I choose a car based on 20% tax, that should be the appropriate percentage until I hand it back.
  6.  If you really want to encourage the take-up of EVs, tilt the BIK further in favour of low CO2 cars. If someone is foolish, selfish or wealthy enough to opt for a high-CO2 170g/km car, their BIK tax should be based on an appropriate percentage of 45% of the list price.

Now, here’s a more radical proposal: scrap the BIK table. It is way too complicated and is no longer fit for purpose. 

We are keen to reduce CO2 and particulates and nitrogen oxides, and we want to encourage the take-up of EVs. 

So replace the BIK table with a labelling system similar to the EU Energy System. Anyone who has bought a washing machine knows how this works.

A number of parameters are measured, and the device is awarded an energy efficiency class from A-G.

We need a name for this system: let’s call it the Eco-Score system.

To achieve the best scores, a car will need to have low CO2, NOx and particulates emissions, while travelling a fair way on battery only. If it falls short on one or more, it will not score as highly. 

This system allows you to include multiple parameters without confusing fleets. The score will also appear on the V5C. Maybe my employer will say I can’t choose anything scoring less than a C. 

And, if the BIK charge is fixed from day one for the life of the car, I will know exactly how much BIK tax I am going to pay and can plan accordingly. 

Over time, as cars get more CO2-efficient, emit less NOx, travel further under electric power alone, etc, the gradings can be changed but the consumer won’t need to worry about how they are calculated. They’ll just know that Eco-Score A is the best. 

For there to be faith in the system, you would have to commit that any change to Eco-Score, or subsequent change in the underlying measurements, will be revenue-neutral rather than tax-grab. 

These are just some thoughts designed to bring some new thinking to a system that needs to be made fairer for the employee, deliver on the Government’s environmental policies and make life simpler for employers.


P11D prices are ‘out of date’ way of determining company car tax

Colin Tourick quoted in Fleet News, October 2017

Manufacturer discounts of up to 35% on some new cars have called into question the relevance of the P11D price in company car tax calculations.

The P11D value of a company car comprises the list price, including VAT, plus any delivery charges, but does not include the car’s first registration fee or its annual road tax.

However, almost nine out of 10 respondents to a Fleet News poll think the P11D price is failing to reflect the true value of the benefit.

One fleet manager told us: “The only winners with higher P11D prices are the HMRC by getting more revenue from the drivers’ benefit-in-kind (BIK) liability.”

Another said: “The current system is about raising revenue, not assessing the benefit.”

Company car tax was reformed in April 2002 to an emissions-based system, with the charge calculated by applying a percentage figure to the P11D price of the car. The car’s fuel type and CO2 emissions determine the appropriate percentage.

Karen Hilton, head of sales operations at Carwow, told Fleet News the list price is becoming “increasingly obsolete, and not just in the company car market”.

“Dealers make offers across the board, knowing a company car will have tax calculated on the recommended retail price (RRP) makes little sense to the driver,” she said.

On the Carwow site, the most popular company cars include the Audi A3 where the average cash saving to a buyer is around 7%; the BMW 2 Series and 5 Series, which have average RRP savings of 10%; the Mercedes E-Class, where savings average 11%; the VW Passat with savings of between 16% and 19% and the Renault Zoe with savings of up to 35% against the list price.

“However, what is clear is that with offers available almost as standard on some models, the method of calculating tax for company vehicles is out of date viewed against how the market is operating,” said Hilton.

Some manufacturers have moved to make the P11D price more effective for company car drivers. Ford has restructured its Mondeo range – including cutting P11D prices by up to £3,000 – to increase its appeal to fleets and company car drivers by offering more equipment and lower tax bills.

A spokesman said: “More than 85% of Ford Mondeos are driven by professionals as a company car, meaning they pay BIK tax based on its P11D price. 

“To minimise tax liability, prices are reduced by £3,000 (on Vignale), £2,500 (on Zetec and ST-Line Editions) and £2,000 (on Titanium Edition) – meaning savings of up to £720 over three years (on ST-Line Edition 2.0 TDCi 150PS, for 40% tax payer) plus £300 on the employer’s fleet National Insurance (NI) costs.”

He added: “The same analysis is an ongoing process across Ford vehicle lines. Mondeo has highest fleet mix, hence the latest news on it.”

Vauxhall has previously done the same with Insignia, recognising the need to make P11D pricing more attractive to company car drivers.

James Taylor, Vauxhall fleet sales director, said: “We recognise the requirements of both fleet operators and company car drivers and try to ensure the Vauxhall range is optimised  to be competitive on BIK and NI contributions.

“As part of our overall wholelife cost and total cost of ownership strategy, we actively review our pricing and positioning and evaluate those elements affected by P11D in order to be highly competitive. This strategy saw us reduce P11D pricing on like-for-like models when we recently launched the new Insignia. 

“Fleet operators and company car drivers made P11D savings of more than £2,500 compared to the previous model as part of our plan to offer low wholelife costs to our customers.”

Vauxhall also launched the Astra with much lower P11D pricing and was one of the pioneers of high-spec, low P11D trims aimed specifically at company car drivers with Tech Line.

James Dower, senior editor, Black Book at Cap HPI said the gap between the P11D price and transaction price can sometimes be “sizeable”. 

“It therefore makes lots of sense to reduce the list price and, in turn, lessen the margin in the vehicle as the car will look more attractive on company car lists from a BIK perspective,” he said. 

Caroline Sandall, deputy chair of fleet representative body ACFO and director of ESE Consulting, says that the gap between the P11D price and the transaction price has been a “bone of contention” for as long as she has been in the industry. However, she said: “Increasingly, the P11D price bears little resemblance to price paid so is not an accurate reflection of the value of the benefit received. 

“Discounts are now so common that the vast majority of private users can achieve some form of reduced price, as well as lease companies and fleets who outright purchase.” 

So should more manufacturers follow Ford and Vauxhall’s lead or HMRC change its method of calculation? Sandall believes it is something that needs to be looked at, but recognises it is not a simple change to make. 

“Nevertheless, the industry should be able to come up with something that works for all purchasers to simplify the system.”

She also argues that the plug-in grant should be taken into consideration.

“It is time for the industry to tackle this issue and find a solution that is more effective for business users than the current published list price approach, especially when considering the price applied for BIK purposes,” she said. 

However, not everybody agrees that manufacturer discounts make BIK payments based on the P11D price hard to justify.

Colin Tourick, professor of automotive management at the University of Buckingham Business School, said: “I don’t think there’s an anomaly with company car drivers having to pay BIK tax based on P11D price. In fact, I think it’s the only workable solution. 

“Various discounts may be available to leasing companies when they buy cars. These discounts change frequently and in many cases the leasing company won’t know what the net price will be until they find a dealer with the vehicle in stock and strike a price. That’s too late in the transaction for the company car driver; when they are browsing through the leasing company’s online quoting system they need to know the BIK tax they’ll be paying. 

“The only fixed, certain number in the whole system is the P11D price. HMRC can check this number easily and two employees in the same company who drive the same model of company car will pay identical BIK tax.”

He also notes that the overall tax-take the Government levies from company car drivers would not be reduced if the system was based on discounted prices. 

“They’d just hike up the rates to compensate,” he said. “So no one would gain but the system would be way more complex and almost certainly unworkable.” 

Furthermore, Tourick does not think the Government should apply plug-in grants to the P11D price. “BIK tax on these cars is already low, though sadly set to rise, so the incentive to choose them is already there,” he said.

“The aggregate amount of grant is capped and once the limit is reached it will no longer be available, so you could have two drivers choosing the same car and one pays less BIK because they got their order in before the pot ran out. 

“And finally we again have the fact that if the total BIK tax the Government collected was to be reduced, they’d ramp up the rates elsewhere. So I think it’s best to leave things unchanged.”

Danger – Diesel

Article published in Fleet World

Strolling through a leafy London suburb, I happened to notice a parked car onto which someone had written the words “Diesel Danger”. As I had been planning to write about diesels this month this was too good an opportunity to miss, so I whipped out my camera and started taking photographs.

I then noticed Bill Oddie standing next to me (yes, really, and if you are under 30 I’m sorry if you don’t know who I’m talking about). He was wearing a facial expression that said “Who the heck are you and why are you taking photographs of my car?” I introduced myself and explained that I was taking the photos to accompany this article. He said “Will you be able to do anything about the scourge of diesels?” and I said probably not, but I would try. He then smiled and invited me to look at the other side of the car, on which he had written “They said it was safe….”.

He’s right of course, they did tell us diesels were safe. When the tax system was altered to take account of engine emissions, companies changed their car schemes to favour diesels because this was the environmentally-friendly option that saved NI for the employer and income tax and NI for the employee.

The problem was, whilst reducing CO2 would save the planet, an increase in the number of diesel cars would boost the quantity of oxides of nitrogen (NOx) being pumped into the atmosphere, and NOx is a pollutant that kills.

We now have a perfect storm brewing. Diesel is a dirty word, the fuel has no friends in the corridors of power, the Transport Minister has already warned people off buying diesel cars and from 23 October Sadiq Kahn, the Mayor of London, will introduce a £10 toxicity charge for cars, vans, minibuses, buses, coaches and HGVs not meeting Euro 4 standards.

DEFRA lost a High Court case in May as a result of which it was required to publish its draft plans for addressing the problem of nitrogen dioxide.  We learned from this that the government likes the idea of local authorities introducing clean air zones (but isn’t too keen on motorists being charged to drive into them), expects Birmingham, Derby, Leeds, Nottingham and Southampton to introduce clean air zones by 2019 and wants dozens more towns and cities to follow suit soon after. The much-discussed diesel scrappage scheme is still being considered, though if introduced it would clearly have to be focussed on removing the most polluting vehicles only otherwise the cost would be astronomical (£60bn were every diesel car and van to be scrapped).

For fleet managers, the key line in the report was buried in clause 54 “The Government will continue to explore the appropriate tax treatment for diesel vehicles and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017”.

Whilst civil servants are not allowed to speak publicly on matters affecting policy in the run up to the election, the mood music coming out of the corridors of power is not that encouraging for fleet managers. The government urgently wants to reduce the number of diesel cars on the road. As someone told me “They are looking at everything: benefit in kind tax, vehicle excise duty, writing down allowances, AMAP rates, national insurance, everything”.

Whilst sales of diesel vehicles are down 6.4% year on year, there were still more than 400,000 diesel cars sold in the year to end April 2017 and the government thinks this number is too high.

As it happens the blanket “diesel is bad” analysis is a bit unfair on car manufacturers, who have reduced NOx and other emissions in line with the latest Euro 6 standard, which makes new vehicles cleaner than ever before.

Source SMMT

Emissions standard Applied to new passenger car approvals from Applied to all new registrations from
Euro 1 1 July 1992 31 December 1992
Euro 2 1 January 1996 1 January 1997
Euro 3 1 January 2000 1 January 2001
Euro 4 1 January 2005 1 January 2006
Euro 5 1 September 2009 1 January 2011
Euro 6 1 September 2014 1 September 2015

Euro 6 was implemented for new vehicle approvals on 1 September 2014, and all new registrations had to comply with Euro 6 standards from 1 September 2015. So a significant proportion of existing fleet cars now emit very low levels of NOx indeed, as these charts show.

Petrol

Emissions standards CO: HC: NOx: PM: PM:
Euro 3 2.3g/km 0.20g/km 0.15g/km
Euro 4 1.0g/km 0.10g/km 0.08g/km
Euro 5 1.0g/km 0.10g/km 0.06g/km 0.005g/km (direct injection only)
Euro 6 1.0g/km 0.10g/km

 

0.06g/km 0.005g/km (direct injection only)

 

6.0×10 ^11/km (direct injection only)

 

 

Diesel

Emissions standards CO: HC + NOx: NOx: PM: PM:
Euro 3 0.64g/km 0.56g/km 0.50g/km 0.05g/km
Euro 4 0.50g/km 0.30g/km 0.25g/km

 

0.025g/km
Euro 5 0.50g/km 0.23g/km 0.18g/km 0.005g/km 6.0×10 ^11/km
Euro 6 0.50g/km

 

0.17g/km

 

0.08g/km

 

0.005g/km

 

6.0×10 ^11/km

 

 

However, you can be sure that as more members of public hear the message “diesel is bad” they will be less inclined to buy used diesel cars. This can only reduce residual values and lead to an increase in lease rentals (or depreciation for fleets that buy their cars or fund them via hire purchase).

Which takes us to the key question for fleet managers: given that the government is so keen to discourage the use of diesel cars, how can fleet managers protect their companies (and employees) against rising costs? The obvious answer is to start looking seriously at the alternatives.

Whatever changes the government introduces we can be sure they will still be committed to reducing CO2. The need to reduce global warming isn’t going to go away, so the safe bet is to look for low-CO2 alternatives to diesel-engined vehicles.

And there are a lot to choose from these days.

For example, smaller, petrol-engined cars. Many manufacturers have done a great job in making smaller power units that are lighter but more powerful. Some of these cars deliver very good performance with low CO2 and NOx output.

If you haven’t yet added hybrid vehicles to your fleet, now is the time to consider these. Low emissions, high mpg, proven technology and pretty high residuals (which deliver low rentals). What’s not to like?

You don’t have any plug-in electric cars on your fleet? Range anxiety can be an issue with battery-powered vehicles, but if you analyse the journeys your employees are driving you may well find employees for whom an electric car would work most of the time, except for the occasional journey that could be handled in a rental car or pool car. Most of these cars are still expensive to buy, even with the government grant, but the cost of the fuel is tiny compared with filling up at the pump.

This sort of analysis is valuable at any time but could be particularly valuable now that we know the government has diesel in its cross-hairs. Looking at your attitude to diesel now could make a lot of sense.

Professor Colin Tourick

Challenging the scaremongers

Article published in Fleet Leasing

Earlier this year the Bank of England initiated a review of the provision of motor finance to UK consumers, instructing the Prudential Regulatory Authority (PRA) to check how resilient lenders’ balance sheets would be in the event of a market downturn and instructing the Financial Conduct Authority (FCA) to look at whether industry practices were harming to consumers.

Very little additional information has entered the public domain since then. The FCA’s ‘Business Plan’ said only that they are “concerned that there may be a lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry“, and that it “will conduct an exploratory piece of work to identify who uses these products and assess the sales processes, whether the products cause harm and the due diligence that firms undertake before providing motor finance“.

Some of the newspaper headlines at the time caused a chill wind blow through the boardrooms of fleet leasing and motor finance companies and through the corridors of the BVRLA and FLA. These articles questioned whether the motor finance market was “heading for a crash” or rife with “loan mis-selling”; suggested that that car salespeople “earn thousands of pounds” every time a customer signs an agreement and even wondered whether “mis-sold car finance could be the next PPI scandal”.

 

On first reading these articles related solely to PCP sold through motor dealers. However, as the initial announcements referred to the sale of motor finance products to consumers, we may assume that this exercise will include the sale of PCH and PCP by fleet leasing companies. FN50 companies are big players in consumer finance, having written 156,000 new PCP and PCH deals last year.

 

Frankly, some of those press articles were appalling: poorly researched and lacking balance.

 

The fact is that most of the industry’s customers are very happy with their PCP or PCH agreements. The industry has invested heavily since the FCA arrived: rewriting procedures, recruiting and training staff and reprogramming systems to ensure that customers not only get the products they need and want, but make fully-informed decisions and are treated fairly.

The PRA is responsible for promoting the safety and soundness of financial services companies whilst the FCA is responsible for ensuring that customers are protected.

The PRA’s review will look at what would happen should interest rates rise and GDP fall. Would defaults increase, what would happen to residual values and what effect would this have on lenders?

The FCA will look at whether there is adequate transparency in the market (whether products and firms’ roles are understood by the consumer), whether lending is responsible (i.e. if consumers can afford the financial product and it is suitable for them) and whether there are conflicts of interests (arising, for example, from salespeople earning commission).

The review of the sector was triggered by the Bank of England’s concern that household indebtedness is high and rising relative to incomes, which might potentially cause problems for lenders with lax lending standards.

Household debt was at an all-time high of around 150% of household income just before the financial crash, then fell to around 130%, and it has now risen to around 133%. Of this, three quarters relates to mortgage borrowing.

Dealership car finance has grown by roughly 4.5% pa over the last few years, which suggests that it is rising rapidly. However, there is an issue with these statistics.

Historically, when people wanted to fund their next car purchase they may well have gone into their bank and taken out a car loan. This option is less popular now (in no small measure because of the guaranteed minimum future values and very low interest rates offered by manufacturer captive finance companies). So whilst the stats show that dealer finance is rising this does not accurately reflect the totality of motor finance. It is conceivable that total motor finance has remained static whilst the mix of deals within the total has changed, with more dealer finance and less bank finance.

Similarly, these statistics exclude PCH. A consumer who in the past only bought used cars might well have taken out their first PCH agreement in the last few years, attracted by the low monthly costs compared with repaying capital and interest on a bank loan. It is possible to argue that this change in behaviour is very much to the consumer’s benefit but in the stats it simply looks like one more new car has been sold via a consumer funding agreement.

It is reasonable to assume that the FCA, having dealt with major concerns about payday lenders, are now focussing on the motor finance market primarily because of the size of the market rather than because it is concerned of any specific bad practices it wishes to squeeze out.

The BVRLA and FLA are both actively working to help the regulators understand how the market works and putting forward the industry’s case.

If your company is not active within BVRLA or FLA committees, and you have insights or ideas about how the market might be improved that might be worthwhile presenting to the regulators, now might be an excellent time to discuss these with the trade bodies. It will be far better to present ideas to the regulators now rather than simply waiting for them to bring forward new draft regulations.

These are some of the point that are no doubt being made by the trade bodies to the regulators:

  1. If the FCA is concerned about competition, it should be aware that, as far as industry practitioners are concerned, competition has never been fiercer.
  2. If they are concerned about price transparency, perhaps more could be done to better educate consumers about the products they are buying. Lenders already do a lot to help consumers make informed choices. Perhaps the next big step would be to move forward with interactive video. This is a nascent technology in which the viewer watches a video clip and must then click to answer a question correctly to confirm their understanding of the issue, before moving to the next step of the video. An audit trail is retained as evidence of compliance.
  3. The systems used by UK lenders to determine creditworthiness and affordability are the envy of lenders in other countries.
  4. Levels of arrears and repossessions are historically low.
  5. Customers have been attracted to low interest or free insurance/low deposit deals, but this is a good sign of a healthy market rather than a sign that something is working against the customer’s interests
  6. PCP offers customers the right of withdrawal, protection against merchantable quality issues and options at the end of the contract that deliver huge, often unsung benefits for the customer. PCH offers RV protection and a very simple product proposition (effectively, a simple form of long term rental).
  7. The ombudsman, BVRLA, FLA and FCA get few complaints from the industry’s customers.
  8. Other than in scare-mongering newspaper headlines, is there any evidence of a growth in irresponsible lending? However, if the regulators’ reports fail to give the industry a clean bill of health this could encourage ambulance-chasing operators to turn their attention from PPI claims (which are now coming to an end) to our industry. “Have you entered a PCP or PCH agreement in the last six years? You might be entitled to claim! Apply now!” A nightmare scenario. If encouraged to believe they had the right to make some sort of claim, many customers would stop making their monthly payments – which could indeed cause problems to lenders’ balance sheets.
  9. The industry is proud of what it does. PCP and PCH are great products for the consumer: good for competition, the economy, the environment, manufacturing and the customer.
  10. The growth in motor finance has come about because people have felt more confident about acquiring a new car in recent years because the macroeconomic environment has been benign: low interest rates, high levels of employment, low risk of redundancy/unemployment, a strong economy, high residual values. It is therefore unsurprising that people have felt more confident about entering into these deals.

If you have any thoughts on these points or have insights, ideas or data that could help the BVRLA or FLA in their discussions with the regulators, now might be a good time to provide these to them.

Professor Colin Tourick

 

 

The Finance Bill – the aftershocks

Article published in Fleet World

Last month’s article was entitled The Finance Bill –  a seismic shift for fleet managers and included an explanation of the new Optional Remuneration (OpRA) rules.

That article generated more reader response than we have had in nearly a decade of writing these articles, the general tenor of which can be summed up as “the Government is planning to do wha-aaaaat? Really?”

Given the importance of the Finance Bill we need to return to this topic this month. The changes will affect many fleet managers, quite possibly the majority.

We will look at the proposals again but from a slightly different angle; trying to work out why the government have introduced these changes and thinking about what you as a fleet manager need to be doing now to ensure that your company and your employees don’t end up being disadvantaged.

First let’s reprise what’s actually being proposed.

The draft legislation describes two types of OpRA; Type A and Type B.

Under a Type A arrangement the employee foregoes earnings in return for the benefit. This is the familiar scenario of a typical salary sacrifice arrangement. If an employee sacrificed salary and was given a company car emitting more than 75g CO2/km before 6 April 2017, they will continue to be taxed under the old rules (the normal company car BIK rules) until the earlier of 6 April 2021 or the date they modify or renew the deal. The new rules do not affect cars that emit less than 75g CO2/km – these arrangements continue as before.

Under a Type B arrangement, the employee receives a benefit (such as a company car) rather than some earnings. This is the one that is making people stop and think. You might think that if someone received a company car, the fact that they had been entitled to a cash allowance would become irrelevant and that they should be taxed under the benefit in kind rules for company cars. That’s what happened in the past and it made perfect sense.

However, that’s not what the draft legislation says. It says that if an employee who is entitled to either a cash allowance or a company car opts for the company car, they will be taxed on whichever generates the most tax.

In a few moments we will try (and largely fail) to explain the government’s logic but first we need to mention that the legislation contains safeguards against clever people trying to game the system.

If any OpRA is changed or renewed after 5 April 2017 the new rules will apply from the date of the renewal or change, except where this has been made necessary by a reason outside of the control of the employer or employee. For example, where the car has been written off and has to be replaced. In such circumstances the change will not be regarded as an event that triggers a move to the new rules.

So, to summarise, we now have two different arrangements:

 

Type A B
Applies when… …employee foregoes earnings and takes a benefit instead …employee is entitled to a cash allowance but opts to take a benefit instead (e.g. a company car)
Example Car salary sacrifice:

If the car emits more than 75 grams CO2/km the employee will be taxed on the higher of:

·        the cash equivalent value of the company car (broadly; list price x the emissions-based CO2 percentage) or

·        the amount of salary they sacrificed.

 

Free fuel salary sacrifice:

Employee agrees to forego some salary and the employer agrees to pay for free private fuel. The employee will be taxed on the greater of:

  • the cash equivalent value of the fuel (fuel multiplier of £22,600 x the car’s emissions-based CO2 percentage) or
  • the amount of salary sacrificed.

 

If the car emits more than 75 grams CO2/km they will be taxed on the greater of:

·        the cash equivalent value of the of the company car or

·        the cash allowance foregone

 

If you want to try to work out why the government has taken this approach to Type B arrangements, it helps to remember that the benefit in kind tax rules were designed to standardise the taxable value when an employee is allowed free private use of their company car. However, in reality they do nothing of the sort. If you and I drive identical company cars and pay income tax at the same marginal rate, but I drive 20,000 personal miles and you drive just 2,000, it stands to reason that I get more personal benefit from the company car than you do. But we still pay the same benefit in kind tax, which is clearly unfair. However, the system isn’t designed to be fair, it’s designed to be simple to administer and to generate a certain amount of money for the government.

Working out the real benefit an individual derives would be an administrative nightmare involving a personal evaluation of the benefit for each employee. However, one might argue that where the employee has the choice between two alternatives they will automatically take the one that is worth the most to them. Therefore, (according to the sort of logic HMRC adopts) if the employee takes the car but the cash allowance is worth more, the employee must value the car at least as much as the value of the cash allowance.

So if I choose a company car that generates a taxable benefit of £200 per month rather than a cash allowance of £300 per month, HMRC will say that I’m placing a value on the car of at least £300 per month and they will tax me on the £300 per month. Ouch.

We can safely assume that these new rules aren’t going to go away, whoever wins the general election. So we have to learn to live with them.

With Type A contracts the situation is clear. If you operate a salary sacrifice scheme you will need to evaluate the net cost of the new rules to the company and to the employees. We have a transition period but this only applies to existing contracts: where there is a new contract the new rules have to be applied. If an employee wants to sacrifice salary for a company car they need to know how much it will cost them. Talk this through with your supplier; they will be able to do the sums for you.

With Type 2 contracts the situation requires more thought. Many company car schemes give the driver the option to take a cash allowance, though in practice most employees chose the company car. But in future the mere existence of the cash allowance option risks creating a tax liability that could be far greater than the benefit in kind tax that the employee would have paid in the past.

Cash allowances have been an important part of flexible benefits schemes for decades. If you offer them, now might be a good time to review whether you should continue, and, if so, the amounts that should be on offer. It could well be that you find that for a whole group of drivers, particularly those who are only allowed to choose from a small range of cars, it might be worthwhile withdrawing the cash option completely.

If you have a group of drivers (say all employees at a certain managerial grade) who are entitled to either a company car (lease rental max say £400 per month) or a cash allowance of say £420 per month, you will find things become complicated. The BIK tax on those cars will vary according to list price and CO2 emissions whereas tax on the cash allowance will be static – and needs to be known by the employee before they order the car, because that’s the amount that will be payable if it’s higher than the BIK.

Most employees are likely to feel mightily aggrieved if they have to pay tax on a cash allowance they have not received, rather than BIK tax on the company car they have received.

Here again a conversation with your leasing company or fleet management supplier will be the order of the day. This stuff is not straightforward.

The aftershocks of the Finance Bill will be felt for some time to come.

Professor Colin Tourick

The Finance Bill – a seismic shift for fleet managers

Article published in Fleet World

Normally, when the government publishes the draft wording of a Finance Bill, the fleet press and commentators rush to give their thoughts, but that didn’t happen on 20 March when the government published Finance (No. 2) Bill 2016-17, the legislation that enacts the chancellor’s spring budget. They had good reason to hesitate, because the government’s proposals are complex and far-reaching and it seems that everyone has needed to take a little longer to work out what it all means. The key areas fleet managers need to be aware of are that the draft puts flesh on the bones of the new approach to salary sacrifice that was announced in the Autumn Statement and introduces a very different approach to cash allowances.

At least one major accounting firm has suggested that the new rules will also affect Employee Car Ownership Schemes (ECOS) but at the time of writing this is unclear, as is the position when an employee who has the right to a cash allowance instead of a company car selects a company car below their entitlement level, i.e. they ‘trade down’. Trading up was referred to in the draft legislation but not trading down.

This article ignores these uncertainties and concentrates on the things we definitely know.

As the government had already announced, from 6 April 2017 any tax and national insurance contributions (NICs) advantages under salary sacrifice arrangements will be withdrawn.

Just to recap, under a salary sacrifice arrangement an employee gives up the right to some salary and receives a benefit instead.

When salary sacrifice is used for cars, the employee saves tax and employees’ NIC, and the employer saves employers’ NIC. The employee pays benefit in kind tax under the normal rules for company cars. Historically, if an employee chose a relatively low cost, low-CO2 car they could make savings. Salary sacrifice schemes have predominantly been used to provide cars for employees who would not otherwise be entitled to a company car, most of whom have been basic rate taxpayers.

The draft legislation describes these arrangements as ‘optional remuneration arrangements’ (OpRAs). The industry knew that salary sacrifice schemes were being reviewed in 2016, but before last November they had no idea that the government would include cash allowances in the rule changes. This has been confirmed in the wording of the draft bill.

If your company operates a salary sacrifice arrangement or offers benefits such as company cars or the option to take a cash allowance in lieu of those benefits, you need to understand the new rules. Even employers that have never offered salary sacrifice but offer employees the choice between a cash allowance and a company car are caught by the new rules. An awful lot of companies, tens of thousands and maybe more, now have to consider how these changes affect them.

The draft legislation describes two types of OpRA, both of which will now be regarded as conferring a benefit on the employee.

  • Under Type A arrangements the employee foregoes earnings in return for the benefit (e.g. a salary sacrifice car)
  • Under Type B the employee receives a benefit rather than some earnings (e.g. takes a company car rather than a cash allowance).

And here is the key piece of information: if an employee choses to take a benefit instead of an amount of salary, they will be taxed on the greater of the salary given up and the taxable value of the benefit in kind.

The legislation includes provisions designed to stop people claiming that a particular type of benefit or form of salary reduction falls outside the scope of the rules.

 

There are transitional arrangements. If someone took a car emitting more than 75g CO2/km on a salary sacrifice scheme before 6 April 2017 they will be taxed under the old rules (the normal company car BIK rules) until the earlier of 6 April 2021 or the date when they modify or renew the deal. If the car emits less than 75g CO2/km the old rules continue to apply.

If an employee changes or renews the OpRA on after 6 April 2017 the new rules will apply from the date of the renewal or change. Amendments that arise because of matters that are not within the control of the employer or employee – e.g. the car is written off and replaced, or the employee is allowed to vary the arrangement because they take are on extended sick or leave or maternity leave – are not regarded as changes for this purpose.

Is a car emits more than 75 grams CO2/km and the employee has sacrificed salary, they will be taxed either on the normal basis for a company car (which is broadly; list price multiplied by a percentage based on the CO2 emissions of the car) or on the amount of salary they sacrificed, whichever value is the higher. To determine whether the benefit in kind or the salary sacrifice delivers the higher value, any capital contribution made by the employee towards the purchase of the car or payments for private use are ignored in the initial calculation (called the “modified cash equivalent”).

Once the appropriate amount has been calculated the employee gets credit for any capital contribution (capital contribution [max £5,000] x the appropriate percentage). Credit is then given for any private use contribution.

Fortunately, HMRC has provided an example of how this will work in practice. Assume an employee has a car for the whole of 2017-18, for which they sacrificed £300 salary per month, and they also paid £1,500 to get a higher spec car than their limit allowed. The car’s list price is £20,000 and it has an appropriate percentage of 17%. The normal cash equivalent value of the vehicle would be:

  • £20,000 less capital contribution £1,500 = £18,500 x 17% = £3,145

The modified cash equivalent is:

  • £20,000 x 17% = £3,400 (the capital contribution is ignored).

The sacrificed salary exceeds the modified cash equivalent, so the sacrificed salary will be used to calculate the additional amount to be treated as earnings and taxed.

Therefore the taxable amount is £3,600 less £255 (capital contribution of £1,500x 17%) = £3,345.

This approach also extends to free fuel supplied to an employee who gives up salary for the right to receive free private fuel paid for by their employer. They will be taxed on either the cash equivalent value of the fuel (calculated on the normal basis where the fuel multiplier of £22,600 is multiplied by the appropriate percentage based on the car’s CO2) or the amount of salary sacrificed by the employee for the benefit of the fuel, whichever is the greater.

So if an employee sacrifices £400 per month and their employer pays for private fuel for a company car with an appropriate percentage of 20%, the cash equivalent of the fuel benefit will be £4,520, the sacrificed salary will be £4,800, and as the sacrificed salary exceeds the cash equivalent value of the fuel, the employee will be taxed on £4,800 not £4,520.

A similar calculation needs to be made if salary is sacrificed in return for being given a company van or free private fuel for such a van.

It’s going to take some while for fleet managers and the fleet industry to get their minds around this sort of logic and there are a lot of consequences of these new regulations.

  • When choosing their company cars, employees need to know how much tax they are going to pay. Currently this is normally shown on the leasing company’s quotation screen. In future, these screens will have to be modified to provide the correct figures, and the systems will have to hold information about cash allowances, capital contributions, personal contributions, etc.
  • Employers are going to have to decide whether to keep cash allowances at current levels or reduce them. If the company offers a generous cash allowance scheme many employees will find that they are being taxed on a cash allowance they haven’t received.
  • The new rules may reduce the incentive for employees to choose low CO2 cars. Employers have to decide how they wish to manage this, or indeed whether this is important to them.
  • Salary sacrifice schemes still work, but the interplay between salary sacrifice, cash allowances and ‘normal’ company-car based benefits in kind tax mean that leasing companies are going to ensure that their quoting system provide the employee with all necessary information on which to base a decision about whether to enter into the salary sacrifice arrangement.

Professor Colin Tourick