Fleet special: the engine room

What should companies be doing in the wake of the Budget?

Alastair Kendrick: The gun has gone on manufacturers to start coming up with a car that meets the requirement of the new 10% tax band. They have until 2008 and it will be good to see if they come out with that. Generally companies should be reviewing the type of fleet they have and whether they have the sums right with regard to the amount of tax that the employee will pay on those cars. Historically, a lot of corporates spent time negotiating deals with particular manufactures to get large discounts. Now they need to make sure that those deals are not compromising their employees because of the cars’ C02 emissions.

Sean Bingham: Fuel costs are really what we’re talking about as being one of the major headaches and that’s an area that corporates can get real rewards. It’s a question of looking at what are you using the vehicles for, and how much money you are spending on keeping them on the road. We did some analysis on fuel costs and for a 200-strong car fleet. With one fleet we were looking at, for every one mile per gallon improvement they could get in fuel consumption, they were saving nearly £10,000 a year net.

Is there a lack of awareness about the benefits to be had under the emission-based tax regime?

Gerald Gornall: Potentially yes, in terms of which vehicles have which emissions and the usefulness of certain tax breaks for company cars. Alastair’s view on whether this 10% rate might see employers offering company cars to a wider population other than the traditional company car and cash allowance population is interesting, because it could be quite an attractive company benefit if manufacturers can make those emission levels.

Does encouraging more company cars defeat the government’s eco-friendly aims on C02 emissions?

Sean Bingham: It’s a question of encouraging cars in the right way. For instance, in 2005, the average C02 emissions of the vehicles we put out were 164gm/km, which is pretty low and the vast majority of that has been achieved by the rise of diesel uptake. For the past year and a half, 70% plus of vehicles we’ve provided to customers were diesel and that’s the reason we’ve seen that.

Gerald Gornall: There has to be a concern. The tax on company cars has fallen, equally there is a lot more people taking cash, therefore the tax take should potentially put staff out – but it really depends on how the government views that tax take.

Will government succeed in meeting its target of increasing the use of alternative fuel cars?

Sean Bingham: They are sending out mixed messages, I’m afraid. The current technology is largely based on liquid pretroleum gas or compressed natural gas. There was a freeze on duty increases, but that freeze has stopped and government actually announced another duty increase in this Budget. If you look at the way car-makers have responded to government policy, all of the major manufacturers have shied away from producing factory-converted vehicles.

With a lot of employees opting for cash, is that possibly a greater cost to the company than actually dealing with the cars?

Gerald Gornall: In my experience there are two areas, one is actually accessing the right amount of cash and the other part is administering those drivers that are taking cash. Quite often I’ve found that cash allowances have been set too high. Three or four years ago the common conception was ‘Ok, they’re going for cash I can forget about them’. Now, if they do any kind of business mileage, you need to keep control of those drivers by making sure that they have the right vehicle, it is insured, it passes its MOT and is serviced properly. So there’s two aspects in terms of the cost. And quite often it does cost more than providing the car.

When are the best intervals for reviewing company car policy?

Alastair Kendrick: It depends on the size of the fleet, as to how often you should look at it. I think most companies find that it is a big item of expense and should be examined on a regular basis. I think that it is imperative that you look at your policy now, particularly, and most importantly, with regards to the health and safety issues.

This weeks's experts

Sean Bingham is director of New Business at Bank of Scotland (Vehicle Finance)

Alastair Kendrick is tax partner at Wilder Coe

Gerald Gornall is director of Intelligent Fleet Ltd

Chaired by Gavin Hinks, the editor of Accoutancy Age