Category Archives: article

Salary Sacrifice for Cars: banishing the myths

Posted on by

Article published in Fleet World

This is the third time in the last twelve months that we have looked at salary sacrifice in this column, and I make no apologies for returning to it now. There are so many myths about the impact of the Chancellor’s announcement in November that it’s definitely worthwhile taking a deeper look.

Just to recap, in a nutshell, the changes the Chancellor announced were as follows:

If an employee takes a car emitting more than 75g/km of CO2 they will pay the higher of (1) the relevant level of Benefit In Kind (BIK) tax for that car or (2) tax on the amount of salary sacrificed.  The changes commence on 6 April 2017 for new agreements and 6 April 2021 for agreements that were live on 6 April 2017.  Cars with 75g/km or less (ULEVS – Ultra Low Emission Vehicles) are not affected by the changes.

So, let’s knock on the head some of the myths that have been flying about.

  1. “Car salary sacrifice schemes have been banned.”

That’s not correct. The tax treatment has changed for some cars but employers can still offer salary sacrifice for cars.

Imagine a situation where you are about to start a new job and the HR person goes through a nice long list of all of the benefits of employment. “We also offer a simple scheme whereby you or a member of your family can drive a brand new fully-insured car using the discounts we have negotiated with our suppliers and the interest rate we pay when borrowing money. In other words, you get the benefit of our buying power.”

Wouldn’t that sound attractive to you? Well that’s still the position. Yes, some tax benefits will only be available for cars emitting more than 75g/km of CO2 from 6 April, but this doesn’t stop the employee getting the benefit of their employer’s buying power, whilst still enjoying other savings like employee National Insurance.

  1. “Salary sacrifice schemes will end in 2021.”

That’s not correct either. Cars that are ordered under salary sacrifice arrangements before 6 April this year will benefit from the old tax rules even if they are delivered afterwards. The 2021 date refers to how long the existing tax treatment of current contracts, and new contracts signed before 6 April, will be protected for.

  1. “Salary sacrifice is going to become more expensive for everyone.”

Also, incorrect, and not just because the rules remain unchanged for ULEVs.

Salary sacrifice cars were always regarded as regular company cars for tax purposes. BIK tax rises annually and will continue to do so for all company car drivers. If the BIK tax an employee is paying on their car already exceeds the income tax on the salary being sacrificed, they will be unaffected by the new rules.

This point, which is explained in more detail in the Range Rover Evoque example below, has not received enough publicity. One leasing company carried out an evaluation of the effect of the new rules on their salary sacrifice clients. They started by assuming that every salary sacrifice employee currently driving one of their cars would have stared their contracts after 5 April. According to their evaluation, 46% of those drivers would be paying no more tax under the new rules than they are paying now in BIK tax. If they did have to pay extra tax, in most cases this would be less than £5 per month. Of course, the employees could avoid this extra cost by simply choosing lower-CO2 or cheaper cars.

  1. “The changes do away with tax and national insurance benefits.”

We’ve already dealt with the tax benefits. Employers will no longer make Class 1A NI contribution savings on vehicles with emissions above 75g/km of CO2. But there has been little publicity about the fact that the Chancellor’s announcement does not affect employee national insurance at all, so there are still NI savings to be made. 75% of current salary sacrifice drivers in the UK are basic rate tax payers so this represents a 12% saving on top of the other discounts.

  1. “Many companies are withdrawing from salary sacrifice schemes.”

In fact the opposite appears to be the case. The day after the Chancellor’s autumn statement a couple of large companies announced that they were withdrawing their salary sacrifice schemes. However, leasing companies have said publicly that they have launched many new schemes since November. It seems that a backlog had built up whilst employers waited to hear what was said in the Autumn Statement. And many employers have realised that their employees value these schemes even without the tax benefits.

  1. “Salary sacrifice is now only worthwhile for ULEVs.”

As already shown above, this is not correct. However, the savings will be good for ULEVs under the new rules.

Let’s now look at a couple of interesting examples. In the first example, we can see that there is still a saving to be made by the employer even though the CO2 of this vehicle significantly exceeds 75g/km.

 

 

Mini Cooper

 The employer’s position
Current Post April 2017
Vehicle & CO2 92 g/km 92 g/km
P11D value £18,060 £18,060
Vehicle scale charge 20% (ave) 20% (ave)
Gross salary reduction £366.53 £366.53
Benefit in Kind £301.00 £301.00
Class 1 NI that would be paid on salary £50.58 £50.58
Class 1A NI payable on gross reduction or taxable benefit,  whichever is higher £41.54 £50.58
Net saving per employee £9.04 £0.00
Average annual net saving £108.48 £0.00
Average pension saving per employee (if employer reduces gross pay for pension purposes) £51.31 £51.31
Monthly net saving £60.35 £51.31
Annual net saving £724.20 £615.72

ULEV vehicle example Current

And in this high-CO2 and high P11D value example the driver will see no increase, as they are already paying more in gross BIK than the gross salary being sacrificed.

 

 Range Rover Evoque – 40% tax payer

 

 The employee’s position
Current After 6th April 2017
Value of the car (P11d) £36,562.00 £36,562.00
CO2 emissions & Average HMRC BIK Rate 113g | 22% 113g | 22%
Gross BIK £670.30 £670.30
Gross salary sacrifice per month £ 567.14 £567.14
Monthly BIK (P11d value x CO2% x marginal tax rate, divided by 12) £ 268.12 £268.12
Income Tax saving (gross sacrifice x tax rate) £ 226.86 £226.86
NI saving per month (this saving will remain) £    11.34 £11.34
Tax due (BIK or income tax whichever is higher) £ 268.12 £268.12
Net cost to employee £ 597.06 £597.06
(Gross cost – NI saving – Income Tax saving + Tax due)

I suspect that once they do the sums, most employers will decide to stick with their salary sacrifice schemes. The calculations now have to be done slightly differently but the financial logic in favour of salary sacrifice for cars remains intact.

Professor Colin Tourick

Where next for the fleet leasing industry?

Posted on by

Article published in Fleet Leasing

When I downloaded an app that allowed me to check nitrogen oxide levels close to my home, I was disappointed that the readings were two weeks old. Then I became interested in my disappointment. Much of the research data I look at is months old, yet here I was expressing disappointment with readings that were just two weeks old.

How our expectations have changed. We expect everything instantaneously and are disappointed if we can’t get it. Let’s bear this in mind as we start discussing the future of the fleet leasing industry.

In the long term, say 10-15 years, fully autonomous vehicles will be ubiquitous. People who prefer to drive may be viewed as “hobbyists”, much as we now regard those who take photographs on film then develop and print the results. Most of us live in cities and won’t want to own cars because we will be able to summon up an autonomous vehicle at will, just like we book an Uber today.

Whether they will actually be operated by Uber or a similar company is open to debate. The speed of Uber’s rollout (and their losses) have been spectacular, and they are working on autonomous cars, but once a new autonomous car rolls off the production line it will be able to find passengers for itself. In this scenario, what value does an Uber-like company add?

Someone will need to buy the cars, charge for journeys, manage maintenance and so on, and fleet leasing companies would be well-placed to do so, though this role could also be performed by wholesale funders or indeed the manufacturers – they have most of the infrastructure already and just need cash on day 1 to replenish their working capital. However, once vehicles are able to report their own faults, book themselves in for repair and drive themselves to auction for sale, there may not be much ‘management’ left to do.

Totally autonomous vehicles may not need to go to auction. They could drive themselves to potential buyers, who will probably be in rural areas where operators cannot viably offer ride-on-demand services.

The fleet leasing industry is in good health at present. Huge demand from its traditional customers – medium and large fleets – and its newer customers – consumers and smaller businesses – have driven recent growth. In the short-to-medium terms the growth opportunities will be immense, as more consumers and small businesses opt for the elegant simplicity of pay-by-the-month-and-hand-it-back leasing, rather than having to stump up cash to buy a car then deal with the used car market to sell it.

The industry has benefitted from the move from ownership to usership, and as the sharing economy grows and autonomous vehicles arrive, many businesses will decide they don’t always need exclusive use of every vehicle, just guaranteed rapid access to transport that will get their employees from A to B.

This takes us into the world of ‘mobility solutions’. Whilst some fleet leasing companies are “monitoring developments in this area” (which might well be a euphemism for “we aren’t sure anything is going to happen here so will just carry on doing what we do”) others are building and introducing solutions.

Many business vehicles cover 20,000+ miles pa on mission-critical journeys. Here a dedicated company vehicle is essential and the cost per business mile is low. Some company cars travel relatively few miles each year and here the real cost per business mile is rather high. There is scope here for leasing companies to sell personal lease schemes via employers, something that was trialled without much success 20 years ago but which may have more success now. Because once vendors start knocking on the doors of fleet managers offering mobility services that slash the cost per business mile, those fleet managers will sit up and take note.

Every element of mobility services already exists – company cars, rental cars, car clubs, buses, trains, aircraft, corporate car sharing, corporate taxi services, even bike hire – but they are not yet joined up. Employees need to be offered the optimal mix of transport modes for each journey, with expenses being managed automatically and with the flexibility to make changes mid-journey, in real time, if, for example, a train is cancelled.

Whilst they are perfectly placed to build these services, most fleet leasing companies have yet to do, or even to meet academics or government agencies that work in this area or the young fintech companies that are trying to develop and roll out solutions. One definition of mobility management might be the intelligent merging of the functions currently performed by fleet industry companies, transport operators and travel management companies, to produce solutions where each journey choice is optimised for cost, timeliness and environmental impact. So a good starting point might be to explore collaboration with travel management companies.

Now would be an ideal time to introduce cost-optimised solutions based on traditional products. An employee goes onto a leasing company’s portal, enters their tax rate and annual business mileage, and the system automatically offers the optimum solution. This could be a company car (contract hire), personal car (ECO or PCH), salary increase (for agreeing not to take a company-funded vehicle), mileage allowance or mobility card – all optimised to minimise emissions and after-tax cost both the employer and the employee.

Next let’s consider data emerging from connected vehicles. In the past, data was extracted from the on-board diagnostics port and transmitted using telematics units but soon all new vehicles will transmit vehicle data via factory-fitted modems.

A punch-up is brewing between manufacturers and their customers – most notably the leasing companies – about who owns this data. The BVRLA is very active in this area on behalf of its members.  In due course no doubt the industry will have access to the vast majority of data that emanates from vehicles, allowing it to develop much better services. These will include proactive maintenance management assisted by predictive insights gleaned by trawling through real time car data and the leasing companies’ own databases.

Very few data scientist are employed in fleet leasing companies at present. No doubt this will change quite soon as the Big Data revolution unfolds. Clients and drivers will expect to see real time actionable information: last month’s raw data just won’t cut it.

Clients will also demand risk mitigation. A company car veers off the road and kills a pedestrian. Some months later, as part of a police investigation or the ‘discovery’ process in a civil action, the employer is required to deliver the data the car reported before the accident. A data specialist trawls through this and identifies a fault code that was transmitted but not acted upon, which in turn led to the accident. Employers will want protection from this sort of nightmare and will expect their leasing company to deliver that protection.

Another area where leasing companies will need to invest is operational efficiency for themselves and their clients. Technology will be at the forefront of this initiative. Leasing companies will need to embed themselves into their clients’ systems, adding value and making themselves indispensable partners. For example, sharing workflow solutions with clients, so that both companies act as one entity to ensure the client’s needs are met. This will deliver headcount reduction and the deskilling of some tasks. Leasing company employees currently need to be highly skilled yet many of those skills could be embedded in technology so that the right thing happens automatically rather than relying on a knowledgeable person to make them happen. Most likely these changes will need to reflect the fact that fleet and travel management departments will merge once mobility services arrive. And these systems will need to include smartphone-based tools to help fleet managers do their jobs and release them from their desks.

Doing the right thing at the right time, helping the client optimise their business travel, using connected car data in new ways to deliver new services, making sure that things are done just-in-time rather than just too late, striving for ever greater efficiency (ever lower levels of headcount per thousand vehicles managed) – these will mark the difference between the winners on the losers over the next few years.

And as we get go into the era of fully-autonomous vehicles, the industry will carry on doing what it is always done; adapting to client needs. Many businesses will still need properly funded and managed cars and vans, fully dedicated to the company, whilst autonomy creates a lot of opportunity for the industry. But to remain relevant it will also have to deliver mobility services to meet the needs of those employees who don’t need a dedicated vehicle.

And all of this will need to happen in real time, to avoid the disappointment that comes from looking at two-week-old data.

Professor Colin Tourick

 

How to be a disruptor

Posted on by

Article published by Asset Finance International

The International Auto Finance Network runs conferences where senior executives from the auto and fleet finance industries can meet, network, discuss the key issues in their markets and look at the major opportunities and threats that lay ahead.

I have been fortunate enough to have been involved with IAFN from the start, which has given me a very good perspective on the things that these executives think about when they are pondering the future direction of their businesses.

Most of these businesses prepare a SWOT analysis as part of their planning cycle, where they look at the Strengths and Weaknesses of their businesses and the Opportunities and Threats they face.

And most of those SWOT analyses will have an entry in the Threats box entitled ‘Threats from disruptors’.

So who are these disruptors, where have they come from, why are they suddenly such a big deal and how can an established auto or fleet finance business stave off the threat of disruption? Those are the topics we will cover in this article.

Disruptors arrive in an existing market and offer highly attractive products or services that threaten the existing ways of doing things. Typically, the people in these companies are young, have recently graduated and are highly tech-savvy.

As with most business start-ups, most of these businesses fail. This is for a variety of reasons including lack of experience, management skills or funding,

Sometimes they go off in completely the wrong direction. A good example would be the company trying to sell a digital Loyalty Card scheme to the owner of our favourite Italian restaurant. The concept, they explained, was that diners would get credits every time they came in for a meal, and after nine meals they would be entitled to a free meal at any restaurant on the scheme. When our Italian friend pointed out that his restaurant was the best in town, and that diners would be able to accrue credits in cheaper restaurants and only turn up at his place for free meals, they went very quiet and said they’d go away and think about it. They haven’t come back.

Which probably tells us something simple but important about successful disruption: if you decide to invent a new mousetrap you must make sure it works.

Most disruptors look at old problems in new ways. In some cases their technology is remarkably cheap and they get to market very quickly. It doesn’t seem to matter if their offering is immature or incomplete. Most technology is launched in a fairly basic state anyway and then refined over time, and consumers have come to expect this.

The best protection against disruption is to innovate and become a disruptor.

If we were inventing mousetraps we’d be able to patent them but in the world of asset finance and management it’s next to impossible to protect ideas, so your best protection is to keep at least one step ahead of the competition.

Disruption is a journey, not a destination. You will always be refining your product and will get things wrong. In fact you should expect to get things wrong and should budget for this. Experiment – a lot. Try things out on a small scale, ramp them up if they have promise and don’t be afraid to dump them quickly if they don’t seem to be gaining traction.

And don’t bet the shop on any one idea. At any point in time you should have several innovative ideas at various stages of development; some minor, some major and some game-changing – disruptive.

Getting the timing right is important. If you can deliver a product that works, just when the client is beginning to feel the need, you’ll do much better than if you launch too early (before the client knows they have a problem and you have to spend ages explaining why they need your product) or too late (in which case someone will have beaten you to it).

Disruptors seem to need a particular mindset. They need to be tenacious and focussed of course, and to be able to carry people with them. But they also need to be iconoclastic – willing to attack the existing ways of doing things even though it won’t necessarily make them friends at the outset.

This is interesting because you probably have people like this in your organisation right now. That guy in Finance or the lady in Sales who never seem happy with the way things are done? Typically, these people are tolerated or ignored: after all, your business works in a certain way and has done so for years, so why change things? In the new world of disruption though, these people become your internal secret weapon. They see things differently, aren’t afraid to challenge the staus quo and offer an alternative vision of the future. Use them.

Innovation labs create an environment in which ideas can be encouraged, fostered and grow. Give a small team of people a problem, a budget, access to key internal people and a timescale and leave them to do their own thing. If you like what they are doing you can implement it, if not you can dump it and won’t have cost too much. Make sure you have the right people on the panel that reviews the team’s ideas. You need people who aren’t scared of change.

Measuring demand for a new product or service is really difficult, so what can you do if you generate a massive surge in demand that you can’t cope with? You need to build this into your plans. You may need to have resources (people, business partners, management, etc) on standby – briefed and ready to react – if demand skyrockets. Outsourcing might offer a good solution, though it takes a lot longer to negotiate an outsourcing contract than to refocus resources that are already within your control.

At an IAFN conference last year the Head of Automotive at Google said that the business world was changing faster than ever and that in order to compete we should be working faster than ever before. This is a good benchmark. Is your company working ‘harder and faster than ever before’ or simply doing the things it has always done with a bit of fine tuning? Or, to paraphrase Jack Welch, ex General Electric, if things outside your business are moving more quickly than things inside your business, you’re doomed.

IAFN research identified that many auto and fleet finance companies are investing in new digital ways of doing business. If not you’re amongst them you’re going to be left behind. Investing to keep up with the competitoion isn’t enough, you need to forge ahead into new ways of doing business.

If you don’t have the internal resources to change the way you do things, or maybe lack people with the vision or experience to challenge the status quo, that’s nothing to be ashamed of – you’re in the majority. So what should you do? You could bring in external consultants, though most consultancies advise but don’t have the resources to deliver the solution. Or you could talk to leading edge suppliers to your industry – software vendors, data suppliers, niche consultancies and potential outsource partners – and companies in similar industries, both B2B and B2C – to gain new insights and perhaps a vision of the art of the possible. Only then can you decide how to forge forward.

Disruption and innovation can arise in multiple ways but it will be worthwhile – perhaps essential – to look at some emerging technologies and see how they can be applied to your business. You need to become familiar with artificial intelligence, big data, deep learning algorithms, automated process flow, modern CRM workflow, cognitive computing, predictive analytics, machine-learning and natural language processing. If you mainly rely on a website to communicate with your clients, you’re way behind the pack.

Rather than aiming to increase the bottom line by 5% next year, why not ask how you might increase it by 100%? And perhaps the bottom line shouldn’t be the place to look first, because if you want to transform your business it should perhaps come from top line revenue growth first rather than bottom line profitability. The bottom line is of crucial importance of course, but if you start with the bottom line in mind and you could get bogged down with thoughts about cost reduction rather than thoughts about explosive revenue growth, and that’s where you need to be.

Interestingly, in the brave new world we live in, it seems that an awful lot of people don’t spend much time looking at the bottom line. Just look at the extraordinary valuations of some giant companies that have yet to turn a profit.

And that’s what managers are there to do – deliver shareholder value.

It’s time to move Disruption from Threats to Opportunities in your SWOT analysis.

Professor Colin Tourick

 

 

It’s time to look at tax

Posted on by

Article published in Fleet World

Tax isn’t the most fascinating of subjects for most people. However, as a fleet manager a knowledge of tax is unavoidable because every decision you make – including whether you offer company cars or a cash allowance, which cars to put on your fleet, how to finance them, how to pay for maintenance costs, etc – has a tax consequence.

In this article we will look at two taxes that are about to increase sharply and discuss ways you might reduce these.

The first tax is vehicle excise duty. The system is due change from 1 April and there is still time (just) for you to take steps to make some savings.

This chart shows the old and the new VED rates:

 

Cars registered before 1 April 2017 Cars registered on or after 1 April 2017
CO2 emissions

g/km

 First year rate Standard rate CO2 emissions (g/km) First year rate Standard rate for petrol or diesel*

 
Petrol and diesel Alternative fuel cars#
Up to 100 £0.00 £0.00 0 £0 £0 £0
1-50 £10 £0 £140
51-75 £25 £15 £140
76-90 £100 £90 £140
91-100 £120 £110 £140
101-110 £0.00 £20.00 101-110 £140 £130 £140
111-120 £0.00 £30.00 110 -130 £160 £150 £140
121-130 £0.00 £110.00
131-140 £130.00 £130.00 131-150 £200 £190 £140
141-150 £145.00 £145.00
151-165 £185.00 £185.00 151-170 £500 £490 £140
166-175 £300.00 £210.00
176-185 £355.00 £230.00 171-190 £800 £790 £140
186-200 £500.00 £270.00
201-225 £650.00 £295.00 191-225 £1200 £1190 £140
226-255 £885.00 £500.00 226-255 £1700 £1690 £140
Over 255 £1,120.00 £515.00 Over 255 £2000 £1990 £140

*£10 discount for non-electric cars emitting any CO2

#Alternative fuel includes hybrids, bio-ethanol and LPG

There is an additional £310 payable for five years after the first 12 months for cars costing over £40,000 that were first registered on or after 1 April 2017.

 

Fuel Standard annual rate Additional rate Total annual payment
Electric £0 £310 £310
Alternative £130 £310 £440
Petrol or diesel £140 £310 £450

After 5 years, the standard annual rate is payable, depending on which fuel the vehicle uses.

We now have a system that is more complicated than before. The first thing to notice is that VED is now going to be payable for the first time on cars emitting less than 101g/km of CO2. Quite a lot of VED, in fact: £680 over four years for a diesel car emitting 91-100g/km (first year rate plus standard rate). You can add another £930 to that if the list price exceeds £40,000. This will annoy fleet managers who made a conscious effort to move their employees into low emission cars.

According to the Department of Transport, the national average emission level for all new cars is 120.8g/km.

The latest BVRLA figures show that new cars added to their members’ fleets in Q4 2016 emitted an average of 110.9g/km. This falls by about 2g/km each year, so we can deduce that the average fleet car will probably be emitting just below 110g/km very soon. VED is currently £20 per pa for those cars or £80 over a four year life, but for cars registered from 1 April that £80 will become a whopping £700 (£1,630 if they cost over £40,000). That’s a hefty increase that won’t have been accounted for in most fleet managers’ budgets.

There is a very small window of opportunity left for you to save that extra amount – order new cars now and have them registered before 1 April. In fact, if you can get any new sub-120g/km car on the road before 1 April you’ll save hundreds of pounds in VED.

The other way you can save VED for a short while after 1 April is by buying (or leasing) a nearly new car, because it’s the vehicle registration date that determines the VED treatment rather than the date you take it onto your fleet. There are always lots of pre-registered cars in the market. Now might be the time to ask your dealer or leasing company if they can get hold of one for you. The lease rental will be quite a bit lower too.

The other tax to be aware of at the moment is benefit in kind (BIK) tax on company cars.

The general rule is that BIK tax is calculated by multiplying the list price of the car by the employee’s marginal tax rate and the ‘appropriate percentage’ shown in this chart.

 

APPROPRIATE PERCENTAGES FOR CAR BENEFIT CALCULATIONS

 

2016-17 2017-18 2018-19 2019-20
CO2

emissions

 CO2

emissions

 CO2

emissions

 CO2

emissions
 

0-50

  

7%

  

0-50

  

9%

  

0-50

  

13%

  

0-50

  

16%
51-75 11% 51-75 13% 51-75 16% 51-75 19%
 

76-94

  

15%

  

76-94

  

17%

  

76-94

  

19%

  

76-94

  

22%
95-99 16% 95-99 18% 95-99 20% 95-99 23%
100-104 17% 100-104 19% 100-104 21% 100-104 24%
105-109 18% 105-109 20% 105-109 22% 105-109 25%
110-114 19% 110-114 21% 110-114 23% 110-114 26%
115-119 20% 115-119 22% 115-119 24% 115-119 27%
120-124 21% 120-124 23% 120-124 25% 120-124 28%
125-129 22% 125-129 24% 125-129 26% 125-129 29%
 

130-134

  

23%

  

130-134

  

25%

  

130-134

  

27%

  

130-134

  

30%
135-139 24% 135-139 26% 135-139 28% 135-139 31%
140-144 25% 140-144 27% 140-144 29% 140-144 32%
145-149 26% 145-149 28% 145-149 30% 145-149 33%
150-154 27% 150-154 29% 150-154 31% 150-154 34%
155-159 28% 155-159 30% 155-159 32% 155-159 35%
160-164 29% 160-164 31% 160-164 33% 160-164 36%
165-169 30% 165-169 32% 165-169 34% 165 and above 37%
170-174 31% 170-174 33% 170-174 35%
175-179 32% 175-179 34% 175-179 36%
180-184 33% 180-184 35% 180 and above 37%
185-189 34% 185-189 36%  

Add 3% for diesel cars, up to a maximum of 37% in total.

 
190-194 35% 190 & above 37%
195-199 36%
200 and above 37%

 

The appropriate percentages will rise substantially over the next few years, particularly for drivers of lower-emission cars. Whilst the actual tax paid by these employees will still be relatively low, the annual percentage increases will be high. So, for example, an employee currently driving a car emitting 99g/km will see their appropriate percentage rise from 16% to 23% in just over three years’ time, a whopping 43.75% more than they are paying today.

So what can you do when these employees start grumbling about this steep increase?

One option would be to see whether there are cars that emit lower levels of CO2 that might be suitable to put onto your fleet list.

Another interesting option would be to check to see whether there are savings to be made from encouraging employees to lease their own vehicles direct from your leasing company using a personal contract hire agreement. You would pay them a cash allowance and they could claim for business mileage at the HMRC approved rates. It is important – really important – that you don’t let this become a free-for-all with employees going off and doing their own thing, because very soon you’d find yourself doing more work to ensure that these cars are being taxed, insured and serviced on time.

Yet another option would be to look at setting up an Employee Car Ownership Scheme (ECOS). These have fallen out of fashion but it seems there may be a resurgence afoot, and at least one leasing company has just started offering these to relatively small fleets.

If you want the best possible solution – total control, lowest cost – you could opt for a hybrid ECOS/contract hire scheme. These represent the gold standard in cost-optimisation. They aren’t for the feint hearted but they really do tick a lot of boxes.

Every ECO scheme gets HMRC approval but there was some ambiguity around the treatment of AMAPs in the wording of the draft finance bill relating to salary sacrifice and cash allowances.  This should be resolved within the next few weeks so we won’t go into details here. However, if you decide to explore changes in your funding method, make sure you get professional tax advice.

 

Professor Colin Tourick

 

Britain Under The Bonnet report

Posted on by

Foreword 

Dealers have been under pressure for years. To maximise turnover they have to invest in large, expensive premises in prime locations and to hold large stocks. If they have a manufacturer’s franchise they need to invest heavily to meet the manufacturers’ standards. When they sell a new car to a consumer they come under pressure to discount the new car price or ramp up the trade-in price and when they sell to a business or a leasing company they make very little indeed. Servicing and repairs used to offer a good opportunity for revenue but this has been trimmed back with the rise of independent garages and fast-fits, whilst most manufacturers have lengthened car servicing intervals. Used car sales can offer good profit opportunities but here again the dealer is constantly under price pressure.

So dealers reading this report will be encouraged to note that consumers still value them highly and that, for nearly a half of the consumers surveyed, going to the dealer for advice was their first step in the buying process. Whilst most buyers tend to do their research online, those that went to a dealer instead spent on half as much time choosing their car. It seems that the internet is great for feeding up information but perhaps not so great as a seasoned car salesman at answering questions.

As the report says, the internet isn’t going to mark the end of car dealers any time soon, and it is encouraging to note that most dealers are positive about the next 12 months.

Another interesting insight from the report is that Millennials – those aged 19-35 – are 50% more likely to acquire a car using finance than older buyers. This is clearly driven by the fact that so many people start their working lives these days with £45,000+ of student debt and simply don’t have the cash to buy a car. This will be music to dealers’ ears because finance commission offers dealers a good revenue stream.

Pre-registrations continue to be a feature of the market, as the report makes clear. Dealers don’t like having to pre-register cars: it uses up credit lines and makes them take on additional risks. The fact is that if pre-registrations were to grow it would make it ever more difficult for manufacturers to sell new cars. Why pay list price for a new car when you can buy one 90 days old that has driven negligible mileage for 20% less?

As the report makes clear, Brexit is casting a shadow over the industry and making dealers concerned about a new recession.

Whilst the likely outcome of the Brexit negotiations is neither known nor knowable, the report offers food for thought for dealers as we move into uncertain times:

  • With so many buyers carrying out online research before entering a dealership, how can you alter your web presence to encourage those online researchers to take the next step and walk into your dealership?
  • With economic uncertainty, buyers are likely to defer replacing their cars. How might you reorganise your sales and marketing operation to make sure that you don’t end up losing volume? Better IT? Better use of data? A more proactive approach to selling?
  • The growth in new car sales in recent years is delivering large numbers of used cars into the market. Buyers will have lots of options so dealers will have to choose the right stock to hold, price it keenly and be proactive in trying to find buyers. (You sold a 3-year-old used car to Mr X 3 years ago? Now might be just to time to call him to see if he wants a replacement).
  • Women now account for a significant proportion of buyers. How could you tailor your sales approach to be more sensitive to gender differences?
  • Is now quite normal for buyers to walk into a dealership and find they know more about a car or a service than the salesperson. This reflects badly on your dealership and makes it less likely you’ll win the sale. Is your staff training up to scratch?
  • Consumers said that, when buying a car, engine size is the most popular consideration (56% of respondents), followed by the manufacturer (52%) and its efficiency (46%). Clearly, consumers don’t realise that brake horsepower and time to 60mph are better determinants of a good driving experience than engine size. Is this something your salespeople might tell prospective customers?

As you make your way through this fascinating report you will find valuable insights into steps you might take to ensure that your business thrives in the future.

Professor Colin Tourick MSc FCA FCCA MICFM

University of Buckingham

 

Mobility article: Asset Finance Pricing Review published by Asset Finance International 

Posted on by

img_4631img_4632

Annual Report to the Shareholders of Mega Mobility Ecosystem Holdings Plc for the year ended 31 December 2026

(as imagined by Professor Colin Tourick)

Dear Shareholders

It gives me great pleasure to report that 2026 was another great year for our company. As you will see from the financial statements our company has never been stronger.

In this my first annual report I wish to pay tribute to the far-sightedness of our Chairman who a mere 13 years ago started making the changes that turned this business from a modest player in the UK fleet leasing industry from the global giant it is today.

In was early in 2014 that he first recognised that new market opportunities were waiting to be explored and exploited, though initially even he didn’t realise where these ideas would take us.

For some years, people had noticed that young people had become less interested in driving cars than their parents’ generation had been. They were likely to have been to university and will have started off their working lives with significant levels of student debts. (How quaint it seems now to realise that there was a time, before the 2018 Education Act, when students actually had to pay their own tuition fees). They were also more likely to live in urban areas where a car was a bit of a liability.

There was talk of ‘mobility management’ but not much actually happened; mostly it was just talk, though the Chairman noticed that the ‘sharing economy’ was also growing and that people were becoming more willing to share journeys to work or to use car clubs.

It was when the Chairman began looking at developments in autonomous cars that he realised that the tectonic plates of vehicular travel were shifting and he set out to put the company at the forefront of those changes.

The Project started in early 2015. The first fruit of The Project was the development of a small online program to help clients manage their pool and company cars. A driver went online, said when they wanted to travel and the system allocated a vehicle to them. A simple client-specified algorithm optimised the cost and CO2 emissions of the journey.

In 2016 work started in earnest to expand the scope of this program dramatically, so that it could optimise not just the use of a finite group of cars but the travel choice for a whole journey. The mission was clear: if an employee wishes to travel from A to B they have multiple options available to them, including their private car, company car (theirs or a colleague’s), a car club car, train, bus, plane, private bicycle, public bicycle, taxi hire car or their own two legs. The system needed to deliver the lowest-cost, least emissions and the fastest journey, with the trade-off between these three variables being set in advance by the employer and any necessary payments (including fares, hire costs, tolls and parking charges) being taken care of automatically. The project involved connecting the company’s systems with multiple databases and proved to be incredibly difficult.

There were two problems. First, each database held data in a different way, so fields needed to be understood and mapped and there needed to be agreement between the various data providers not to change the use of a field without consultation. The second problem was reaching agreement with travel companies, airlines, hire companies and so on, each of whom could see the advantage in having a joined-up system – which came to be known as an ‘ecosystem’ – though many had to be persuaded to co-operate.

By early 2018 the company had cracked the major problems and launched Ecosystem One, the forerunner of Ecosystem Five that we have today.

The Chairman’s prescience was proved in 2018 when the government imposed strict pollution controls on cities, dramatically increasing the daily charges for all vehicles entering urban low emission zones. Suddenly companies stared looking for alternatives to the existing models of mobility.

2018 was also the year we launched Ecosystem Two. This allowed clients to tailor the system to their needs but also opened it up to anyone who wished to use it. We no longer had to go to businesses to pitch to win their business. If they wished, they could simply start using the system for free. We made our income by taking a small slice of the fares, hire charges, fees, parking charges etc levied by the suppliers of services. The Chairman had anticipated that Ecosystem Two would prove popular with private individuals as well as corporates, and of course he was right because it became the journey planning and booking tool of choice for a generation keen to get around as cheaply and effectively as possible.

Ecosystem Two also started taking data directly from connected vehicles and using it in a whole host of interesting ways, including for the first time making the decision about when a vehicle would be sent for servicing. By 2018 manufacturers had accepted that cars could monitor their own essential functions and could decide when they needed to be serviced. ‘Variable servicing’ had been in place for some years but this moved us up to a new level. Our maintenance controllers were still an essential part of our service, of course, especially as they could now interrogate each vehicle remotely to see what work needed to be done.

All of this of course was setting the path towards our integration with the autonomous taxis, which happened in 2019. Uber had been developing autonomous taxis since 2015 and, once they had managed to deal with all of the regulatory and insurance issues and were launched in earnest in 2019, we integrated with them. Deals followed with Gett, Lyft, Curb, Grab, Didi Chuxing and Ola, taking us for the first time into the USA, China, Southeast Asia and India.

When we launched Ecosystem Three in the UK in 2019 we became the first company to offer a full end-to-end journey service that included autonomous cars. Now in 2026 when most cars, many commercial vehicles and all taxis are operating autonomously, young people can barely remember the days when all vehicles had a driver. For them it is completely normal that when they book a journey using services such as Ecosystem Five, a driverless vehicle turns up, takes them to their destination then drives off to pick up the next passenger.

These developments of course shook the foundations of the motor finance and fleet leasing industries. As the need to operate fleets of vehicles declined, some motor finance and fleet leasing companies focussed exclusively on mission-critical fleets of cars and vans for the emergency services, delivery companies, service companies and so on – organisations whose mobility needs could not be met through the use of shared vehicles. Others have followed the lead we have taken and run their own fleets of autonomous cars. Whilst we are the market leader in the UK, with 270,000 vehicles, we do have smaller competitors snapping at our heels, some of whom didn’t even exist in 2016 and came along with solutions that disrupted the existing market.

In other countries we typically rank third or fourth and there are still many countries that have yet to embrace autonomous vehicles so we still have a lot of potential to grow.

Whilst Ecosystem is by far our largest division I must of course pay tribute to the great work being done by our Urban Realignment team which we set up only two years ago. They have just finished digging up their 25,000th domestic home driveway and replacing it with beautiful green landscaping. In 2016 few people would have realised that once all cars would no longer be operated by companies or owned by individuals there would be no need for domestic houses to have private driveways.

Urban Realignment have also recently won contracts to remodel the town centres in 12 urban areas, removing crash barriers, traffic lights dual carriageways etc. Now that cars always behave properly and ‘speak’ to each other there is no need to devote as much road space to cars or to segregate them so much from pedestrians: every car knows to stop if they see a pedestrian.

Urban Realignment have also just converted their 20th public car park into residential housing and are pitching for contracts to convert office car parks into either landscaped park or office space.

We are looking forward to 2027 being another record-breaking year.

Chief Executive

 

Introducing … a tool to help you rethink your approach to pricing

Posted on by

[Article originally published in Fleet Leasing]

Next time you pop into a corner shop, have a chat with the owner behind the till.  In many ways they are the perfect business person because they know everything about their business: the cost of every item they sell, the local competition, how much they have to pay every year in rent, rates, insurance and so on and how much they have to put in the till every week to cover these fixed costs and feed the family. Armed with all of this knowledge the owner finds it relatively easy to decide how much to charge for each item they sell.

I asked a local shopkeeper about his business recently. He told me that he has a great relationship with his customers, many of whom he has known for years. “However”, he said, “I’m here to make money, not friends”.

As businesses grow, roles and responsibilities begin to get divided up between different people and very soon there is no one person who knows everything. People are slotted into silos. They become great experts on their part of the business but they are not particularly familiar with the details of the work being carried out elsewhere in the organisation. Management has to be careful to ensure that decisions made in one part of the business that look perfectly reasonable when viewed through the prism of that department’s responsibilities are still optimal when it comes to meeting the needs of the overall business.

Let’s talk now about leasing company pricing. In most contract hire companies someone is responsible for obtaining new vehicle data, someone else negotiates discounts with dealers and someone else obtains VRB details and negotiates tactical deals with manufacturers.  A team of people probably works on setting residual values, another team works on maintenance budgets and someone else works out the cost of funds for each period and deal profile. Taken together, these items form the cost elements for each vehicle for every term and mileage. Someone from each ‘silo’ pops their contribution into the pricing system. Given that each of these numbers has been arrived at by a process or negotiation or judgement, each leasing company has a different base cost for each vehicle. The sales director is then given a target volume and margin to hit and they do their best to ensure that they quote for each deal as well as they can.

There’s an analogy to be made here with cake-baking. If someone bought the flour they thought would be best for the job, someone else bought the dried fruit, someone else bought the sugar, someone else the butter, someone else decided the quantities to use and how to mix them up and someone else decided how long at what temperature to cook them, you might end up with the perfect cake. Or you might discover that it tasted absolutely awful, because no one person had an overview of what was going on and was thinking about the impact that each decision was going to have on the ultimate texture and flavour of the finished cake.

So, the trick for a contract hire company sales director is to gather together all of the information they can from inside and outside the organisation, assemble this in some way and use it to help them decide how much to quote in every situation. That’s quite a tall order!

All contract hire companies impose some level of control on their sales people to ensure they do not quote at suicidal prices. And all contract hire companies have some market knowledge available to help them to decide what rental to quote.

Here is an interesting tool that you can use to assess how well your company does its pricing. It’s called the Pricing Journey. For the purpose of this article, “price” means margin (which you might call “margin over cost of funds” or “overhead contribution”) plus cost (interest cost, maintenance cost and the other elements shown above).

For the purpose of this article, “price” means margin (which you might call “margin over cost of funds” or “overhead contribution”) plus cost (interest cost, maintenance cost and the other elements shown above).

 

This chart looks at two factors that will be present in every leasing company.

  1. Customer insight is the insight that you have into the way the client is likely to respond to your quote. Customer insight grows if you have a lot of market knowledge, a lot of experience in doing business with that particular customer and a real understanding of where your price sits in the market.
  2. Management control is the control that management introduces to minimise exposure to risk or sub-optimal decisions. So, in a pricing context, management exercises control by imposing minimum margins: the salesperson needs to refer to their line manager for approval to issue a quote below this limit.

If a company has low customer insight and low levels of management control, the result will be chaos. Salespeople will be issuing quotes ‘blind’, with no real idea whether they are pitching very high or very low. As there is no management control, this is a recipe for disaster.

Typically, management introduces controls to impose discipline. They try to gain greater insight into the prices that should be quoted so that opportunities are not being lost by quoting too high, whilst money is not being ‘left on the table’ by quoting too low. This is Pricing Order.

As management increases the amount of data it reviews and the analysis it carries out, it begins to recognise that it has information that it can provide to the salesperson that will increase the probability that the salesperson will be quoting optimum prices. ‘Optimum’ here means the price that maximises the probability of winning the deal whilst being as high as possible.

Management then develops ways to systemise this information, and can then start delegating some decision-making to the salesperson in the knowledge that quotes are being issued with the benefit of a good level of customer insight.

As the quality and quantity of data available to the salesperson at the point of sale improves, customer insight grows to the point that the salesperson can be empowered to issue quotes without very much management control or oversight at all. Management knows that the salesperson is so well informed about the company’s competitive position generally – and for each client specifically – that the salesperson can be empowered to make optimal pricing decisions.

This article is designed to provoke some thoughts. Where is your company on this chart? Are you in position 3, Pricing Order? What would you need to do to move to positions 4 or 5, Pricing Control or Pricing Delegation? Would it ever be possible for you to get to Pricing Empowerment? What would you have to do to get there and what would things look like when you arrived?

Many leasing companies have been looking at this issue. They have realised that all too often they issue quotes with no real idea of whether they are likely to be quoting £10 per month above the competitor’s quote, £10 below, or precisely where they need to be – a few pence below. They know for example that it makes no sense to apply one blanket margin to a particular client (“3% over cost of funds”) regardless of whether the client is ordering cars where the lessor’s RVs are high or low versus the market average. They also know that if they have recently issued 400 quotes on a particular make, model, period and mileage and won 80 of these, and issued 400 quotes on a different make, model, period and mileage and won 20 of these, this is probably telling them something about their relative competitiveness on those two deals and that they should use this insight to nudge up their pricing on one deal and nudge down their pricing on the other.

And they are coming to realise that it is necessary to have one person – one brain – sitting on top of all of the data and information at the company’s disposal in order to try to make sense of it and to use it to improve the way the business does its pricing.

Professor Colin Tourick

 

Great press review of Company Car and Van Tax 2016-17 in Asset Finance International Magazine

Posted on by

AFI

 

 

 

The indispensable guide for UK fleet lessors, and in fact any British organisation that runs company cars, has just had its most recent update – the sixth edition of Company Car and Van Tax written by Colin Tourick.

The book, which is a supplementary publication to Tourick’s book on leasing and fleet management –Managing Your Company Cars – sets out the detailed tax rules, rates and allowances for 2016-17 and will be of interest to all fleet managers, fleet industry professionals or even employees who drive company cars, or their own car, on company business.

In addition to being a complete update on detailed tax rules, rates and allowances, contents range from car sharing to the more complex world of salary sacrifice schemes.

Tourick explained that the book is based on the Budget presented to Parliament by the UK Chancellor of the Exchequer on 16 March 2016.

Colin Tourick is a management consultant specialising in vehicle leasing and management. He has worked in senior roles in the leasing industry since 1980 and for the last 13 years has worked for some of the world’s largest banks, motor manufacturers and vehicle leasing companies.

He is a co-founder of the International Auto Finance Network, which runs conferences, carries out research and runs awards programmes for the fleet and auto finance industries. He is the Grant Thornton Professor of Automotive Management at the University of Buckingham.

Company Car and Van Tax is available from Amazon, tourick.com and all good bookshops. 80 pages.

[Original article here]

An economic briefing for fleet managers

Posted on by

In this article we will be looking at some macroeconomic indicators and the reasons they should be of interest to fleet managers.

I am grateful to Dr. Eleftherios Filippiadis of University of Buckingham Business School, whose recent lecture inspired me to write this article and who provided much of the background data.

There are many macroeconomic indicators affecting UK business. The main ones we will discuss are:

  • GDP growth
  • Interest rates
  • Consumer confidence and
  • The budget deficits

There is a strong correlation between GDP growth and UK car registrations. When GDP is increasing businesses are confident to take on more staff and business vehicles, and consumers feel secure enough to buy new cars. The government is forecasting a GDP growth rate of 2% p.a. from 2016 to 2020 (source: Office for Budget Responsibility), which is lower than the 2.9% in 2014 and 2.2% in 2015.

When productivity declines (strikes, failure by businesses to invest in new technology) this reduces the willingness of businesses to invest, and if real wages do not grow (inflation rises faster than incomes or there is an increase in zero hours’ contracts) this reduces disposable income in the hands of consumers. Either will threaten the projected GDP growth rate, making it less likely that employers will increase headcount or add to their vehicle fleets.

A possible Brexit would also threaten the GDP growth rate, as so little is known about what might happen if the UK voted to leave the EU. Markets hate uncertainty and if the electorate votes to Leave the economy might stand still whilst employers wait to find out what’s going to happen next. We would be in uncharted waters.

The official Bank Rate has remained at 0.5% for seven years, significantly reducing costs for UK businesses. There is no expectation of a rise in interest rates this year, though when it does come it will hit companies’ bottom lines and dampen demand in the economy (though savers will rejoice).

Consumer confidence is a key determinant of the state of the economy. If consumers are confident they will go out and spend, keeping the economy buoyant. The Consumer Confidence Index is currently high though it has fallen slightly since the peak in 2014.

The UK government has announced its intention to deliver a surplus on public sector net borrowing by the end of 2019-20 and in each subsequent year. If it fails to balance the books it will need to raise taxes (income tax, corporate tax, indirect tax or all three) which could slow down GDP. This is because higher taxes on companies discourage investment in, and by, businesses, and higher personal taxes reduce consumers’ disposable income.

So, as a fleet manager, what might these macroeconomic indicators mean to you? How might you respond if one of these numbers rose or fell?

Every company is different. Whilst most do well when GDP rises, others fare better when it falls.  Some businesses will do well from Brexit whilst others won’t. There are no rules that work for every company, so from this point on we’ll generalise.

If you see an increase in GDP growth and consumer confidence, things are looking up for the economy. You might expect business to grow. Your company may well expand. More cars, more responsibility, more issues to control. Could this be the time to outsource your fleet management or to invest in some fleet software to help streamline your fleet administration?

If the economy is growing there will be more competition for new recruits. Is it time to review your fleet policy to ensure the cars on offer will be attractive to job applicants?

Conversely, when GDP growth or consumer confidence fall, you may find your company is less willing to invest. This might be the time to think about getting more from your existing assets. Do you need as many company cars? Would you save money if you took on a few pool cars rather than allowing your employees to use their private cars for business mileage? How can you get more out of your fleet budget? Is it time to take more control over mileage claims, perhaps by introducing mileage claim auditing or telematics? Telematics might also reduce your insurance claims and help keep down your premiums.

If productivity in your business were to fall, you may find your fleet budget being cut. You may have to deliver the same amount of corporate mobility and the same number of cars for less. Could this be time to ask your leasing company to come up with a fleet list of attractive cars that staff will like and that will do the job but which will cost less to run? Here we are talking about fuel cost and Class 1A NIC as well as maintenance costs and the monthly lease rental.

At some stage, interest rates are going to rise. If the market expects the Bank Rate to rise, actual market rates may creep up more quickly than the Bank Rate. This will be reflected in the cost of three and four year leases, because leasing companies’ own borrowing costs will rise. It is worthwhile monitoring Bank Rate and leasing company cost of funds (they will generally tell you if you ask).

If you currently fund your cars from working capital, bank overdraft or variable rate finance deals (such as variable rate lease purchase, finance lease or HP) at some stage you will need to decide whether to move to a fixed interest rate funding method (fixed rate HP, fixed rate finance lease or contract hire) to lock in low interest rates for 3-4 years before prices rise.

Keep an eye on the budget deficit. If it doesn’t fall as fast as the government wants they may be tempted to increase taxes. There are no votes in company car tax and taxes on business vehicles. It seems that the best way to protect your business would be to keep on driving down the average CO2 emissions of your fleet. Low CO2 cars tend to be smaller and more efficient, and they cost less to buy, maintain and run than higher-CO2 cars. Zero CO2 cars are still relatively expensive to buy, though for some drivers the fuel cost saving makes the extra cost worthwhile. In any event by moving to lower-CO2 or zero-CO2 cars you’re likely to be protecting yourself and your employees from sudden increases in car-related taxes.

Fleet managers and economics. Four words you don’t often hear mentioned in the same sentence. But economics provides the background for all business decisions and can therefore drive fleet decisions too.

Professor Colin Tourick

University of Buckingham Business School