PracticeAccounting FirmsCar ownership schemes: fit for purpose?

Car ownership schemes: fit for purpose?

Employee car ownership schemes bring structure and control to offering cash car allowances and ensure they buy something suitable

Fleet decisions

As budgets squeeze, one of the first areas that many companies look for cost
savings is the company car fleet. It is often tempting to remove the
unpredictable cost and admin burden of running the fleet and simply replace it
with a fixed cash allowance.

This may appear to be an effective way to freeze the budget and remove the
admin costs, but it exposes the company to risk. It makes the very big
assumption that employees will spend their sudden increase in salary on a
suitable car, but there are no controls over how an employee spends their cash
allowance.

In reality, staff may choose to buy a vehicle that is wholly unsuitable for
their job, or they may fail to adequately maintain or insure it for work
purposes.

The new Corporate Manslaughter Act considers that a car used for business
(however it is funded) is a place of work. Once ‘car allowance’ appears on an
employee’s payslip, liability falls on the employer. If the cars are not found
to be ‘fit for purpose’, are poorly maintained or the drivers have not received
adequate instruction or training, then companies will be vulnerable to
prosecution. Strict guidelines already exist for drivers on company business and
employers are expected at the very least to have a suitable policy to
demonstrate their duty of care to employees.

The lack of control over how a cash allowance is spent also has implications
for the environment. Staff may be tempted to buy older vehicles, which they
believe will be cheaper for them to run, but these vehicles will undoubtedly
increase the corporate carbon footprint ­ something that most company directors
are becoming more and more concerned with.

One way to overcome the lack of controls, but maintain the cost and admin
savings, is to introduce an employee car ownership scheme. ECO brings structure
and control to a cash allowance scheme by dictating certain conditions regarding
how the allowance is spent. Perhaps surprisingly, staff welcome this structure,
because it takes the uncertainty out of budgeting their private car ownership.

Under ECO, the choice of cars is usually much wider than that on a
traditional company car scheme, with significant discounts over high street
prices. Unlike many other private car purchases, no lump sum deposit is needed.
Fixed monthly payments cover all servicing and maintenance, including tyres and
breakdown cover. The payments are protected against the driver leaving the
employer, and the final value of the car is guaranteed, giving the owner various
options at the end of the contract.

The whole system has the freedom of a cash allowance and the feel of a
company car, without the personal tax implications.

Employers can, and do, impose a number of controls over the type of cars that
can be bought within an ECO scheme. Various suitable vehicles can be included,
and those deemed unsuitable for a particular job function (such as sports models
or those with limited boot space) can be excluded.

Environmental controls are also becoming more prevalent in ECO schemes.
Interestingly, ECO already helps reduce carbon emissions because drivers in
their own vehicles are proven to cut down on unnecessary journeys ­ covering up
to 15% fewer miles every year than their company car counterparts.

One of the ways companies can look to reduce their carbon footprint is to
incorporate a limit on the CO2 emissions permitted in the scheme. One of
Provecta’s clients, MITIE Property Services, went one step further. As well as
imposing an overall CO2 limit, the company actively encourages staff to choose
cars with even lower emissions. Drivers are given an extra £10 per month in
their allowance if they choose a vehicle with 10% lower CO2 emissions than their
benchmark car, that is the car they would have had as a company car.

When staff need use of a car for work, it is no longer acceptable to simply
hand them the cash to sort it out for themselves. Even staff who are occasional
private car users at work need certain controls ­ for example, is their driving
licence and MOT up to date; are the tyres regularly checked; does the vehicle
have the relevant category of insurance for business use? One way to exert
control over private car users who claim the occasional business journey on
expenses is to introduce an automatic approval system that ensures certain
essential health and safety controls are being adhered to.

As the business world changes, companies need to adapt. To run their
businesses efficiently costs have to be kept to a minimum. But costs are not the
only factor; particularly where staff welfare is concerned.

The provision of cars is perhaps the only business cost where both sides can
gain if the right system is in place.

ECO scheme incentivises lower CO2 car choices

When MITIE Property Services, a business support and building services
specialist, switched to ECO just over a year ago, the company saw it as an
opportunity to promote the ‘environmentally accountable driving’ message.

The company introduced powerful incentives to drivers to choose lower CO2
vehicles. Drivers are given an extra £10 in their monthly allowance if they
choose a vehicle with 10% lower CO2 emissions than their original company car.

Analysis shows that ECO drivers contribute less in the way of carbon
emissions than company car drivers. As ECO drivers are the owners of the
vehicle, they usually choose more economical models and cut down on the number
of journeys they make, because it directly impacts their pocket.

Use of an online mileage capture system showed that MITIE ECO drivers were
doing on average 15% fewer miles than they had in their company cars. Based on
an average company car CO2 emission of 166g/km, and average annual mileage
27,000 (43,443 km) before ECO and 23,000 (37,007 km) after ECO, the reduction of
CO2 by 10% and mileage by 15% resulted in a total annual fleet carbon footprint
reduction of 255 tonnes.

Nick Sutton is chairman of Provecta Car Plan

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