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In good company: which car scheme should your business offer?

It’s fairly easy to organise a company car fleet for any size of business. The most difficult part is deciding which type of company car scheme is right for you as an employer.

You’re an employer providing a great service and you want top people alongside you to achieve your goals. But how do you attract them?

A decent salary of course, and perhaps some eye-catching add-ons. For many prospective employees, an essential part of any offer is a company car scheme of some sort. It’s well-known that, after a house purchase, a car is usually the biggest acquisition anyone will make, so to get one as part of an employment package is a real bonus. Some might say it’s the deal-clincher.

Company car schemes are probably the most popular of all employee benefits to be offered, and that’s good news for the car industry too – around half of all new cars sold go to company fleets.

Being able to offer a car as part of a job package not only says a lot about you as a company, but it opens up a wider pool of good people to draw from. Because for many potential employees, it’s a case of: ‘No car? No thanks.’

And company car packages are not just the domain of big businesses. Smaller companies and even start-ups can just as easily throw company wheels on to their benefits list in the bid to attract the right people.

It’s fairly easy today to organise a company car fleet for any size of business. The most difficult part is deciding which type of company car scheme is right for you, as the employer, to offer.

So what’s available?

There are basically three ways forward on the road to a good company car scheme:

  • company-owned vehicle
  • employee car allowance
  • employee salary sacrifice scheme

They’re all quite different and each option offers its own pros and cons.

Company-owned vehicle scheme

Running a straight company car scheme has many advantages over and above creating an attractive rewards package for staff. It’s a controllable scheme as you can choose which cars are offered and therefore their cost.

Cars with low or no CO2 emissions can be specified, thereby lowering the carbon footprint of your business. Servicing and maintenance can be organised as a ‘job lot’ to reduce costs and you can even incorporate some small signwriting on the cars to advertise your company and its business.

On the downside, there could be a large ‘start-up’ cost to get your fleet bought, taxed and insured and ultimately, you as the employer, are responsible for the maintenance and upkeep of a fleet of vehicles – and that doesn’t come cheap.

There are also tax and national insurance contributions (NICs) to consider. Employers will pay NICs based on the value of a car and the fuel that it uses. And employees will pay too – cars are taxed according to their value and the type of fuel that they use, so the more emissions (CO2) the car emits, the greater the banding figure, while diesel cars carry an extra 4% on top of their banding rates.

And with benefit-in-kind (BiK) tax being levied on fuel used for private use too, it is important to choose cars that represent reasonable tax value for the employee, or the benefit of having the car will be lost.

Company car allowance

This is a straight cash allowance which is added to your employee’s salary, enabling him or her to put it towards the car of their choice, either buying or leasing it. One immediate benefit is that neither the employer nor the employee has to worry about paying company car tax. The employee will, however, pay income tax on the extra money they’re being paid.

Another benefit for the employer is that you are not responsible for the upkeep, maintenance or insurance of the vehicle because it’s not yours. And the employee will have to keep their own records of business mileage versus private mileage, not you.

Your employee doesn’t have to use all of their allowance on the car, so they could buy or lease a cheaper vehicle and pocket the extra cash. They also get to keep the vehicle if they leave your company, which means that you don’t have to worry about continuing to pay for an idle vehicle while you’re recruiting a replacement staff member.

The potential downside is that you’re not in control of the car your employee buys. If your business is trying to project a clean and green image, for example, you don’t want your employee turning up to meet clients in a ten-year-old V8 barge that emits more pollution than a small town. Or they buy something hideously unreliable that breaks down halfway to a crucial meeting…

Salary sacrifice

Salary sacrifice schemes are business contract hire arrangements which allow employees to take a new car – helped by their employer – and in return sacrifice part of their gross salary to pay for it. That means they don’t pay income tax or national insurance contributions on the portion of their salary they have ‘sacrificed’.

This was a popular way to get a company car up until 2017, when the government changed the tax laws to make drivers pay income tax on the value of the car or the amount of money they were giving up to get one. So the attraction waned.

However, with electric cars, the opportunity to save that tax and NIC is still there and, even though from this month (April 2021) employees have to pay 1% of the value of the car in BiK, it’s still an appealing proposition for many.

For the employer, salary sacrifice is still a worthwhile consideration. It adds no more cost to you, while providing a tax-effective way for employees to drive a new car that usually leaves them with extra money in their wallet each month.

It encourages everyone to opt for clean, low emissions cars that attract lower company car tax, and it also means lower national insurance bills for the employer because the worker’s gross salary has been reduced.

It doesn’t suit every business though. Companies with lower-paid staff might find that the scheme is not worth it to them as there is little room to ‘sacrifice’ salary. Also, firms with a high turnover of staff could find themselves with unwanted returned vehicles that they have to pay early termination fees on.

Sometimes employers will choose to offer multiple options for employees to take a company car. So, for example, an employee could use their car allowance cash to take a vehicle on a salary sacrifice programme. Depending on the circumstances, this could offer your staff the best of both worlds.

Tom Johnston
Tom Johnstonhttp://johnstonmedia.com/
Tom Johnston was the first-ever reporter on national motoring magazine Auto Express. He went on to become that magazine’s News Editor and Assistant Editor, and has also been Motoring Correspondent for the Daily Star and contributor to the Daily and Sunday Express. Today, as a freelance writer, content creator and copy editor, Tom works with exciting and interesting websites and magazines on varied projects.