Are car schemes still a valued employee benefit?

Need to know:

  • Company car take-up has fallen in recent years as overall tax levels have risen.
  • Electric cars benefit from lower rates and are now the focus for many employers.
  • These are increasingly being offered via salary sacrifice rather than on a company-paid basis.

For many years, the traditional company car scheme was the ultimate perk, either reserved for those of a certain seniority or as a means of transport for those who needed a vehicle as part of the job.

Ashley Barnett, head of consultancy at Lex Autolease, says: “Cars have always been a valued benefit to employees; they are an important element of the total renumeration package and continue to be. For employees, it can be the best way to get the latest vehicle from a financial perspective, without the need to consider additional in-life costs, such as tyre replacement, servicing and insurance. This is particularly beneficial in the current economic climate.”

Yet the number of company cars has fallen in recent years, with a steady decline since 2015 dovetailing with rising taxation rates. Harvey Perkins, a director at HRUX, says: “The increase in tax charge has been phenomenal and unprecedented. Something like the BMW 3 Series 320 D, which used to be such a prized benefit, is now pretty unattractive as a straightforward company car for the majority of individuals.”

The pandemic has also had an impact, says Barnett. “The job-needs role is under a period of re-evaluation, as people travel less post-pandemic and businesses reconsider the need for company cars,” he explains.

Electric vehicle options

The saving grace for company car schemes, though, has come in the form of electric vehicles, says Perkins. “The tax charge on these is as historically low as it is high on petrol and diesel cars,” he says. “This year, it’s 2% of the list price of the vehicle and that will be the case until April 2025. People are paying £20 or £30 a month in company car tax to drive a £40,000 car.”

These rates only apply to electric cars rather than hybrids though and, while ranges have improved, they may still not be practical options for every company car user. “If [an employee] lives in a flat or [they] cannot charge it at home, and [they] have to do 20,000 business miles a year with a boot-full of carpet samples, then we may not be at a point where an electric company car is a genuine option,” says Perkins.

The tax incentives, though, are so appealing that many organisations that have quietly moved away from company cars towards offering cash are now opening them up again, offering only electric vehicles, he adds.

Funding choice

Significantly, though, this is now more likely to be on a salary sacrifice basis, meaning employers effectively pass on the cost of the car to employees. Rui Ferreira, chief commercial officer at Onto, says: “We’ve noticed that fewer [employers] are offering out company cars as an option and instead are deploying salary sacrifice schemes across the board to attract and retain staff. The tax regulations mean both employee and employer can save a substantial amount.”

Salary sacrifice arrangements can also bring electric cars into the remit of those on lower salaries. For example, Tusker claims 70% of its electric vehicle fleet are 20% taxpayers. Paul Gilshan, chief executive officer of Tusker, says: “It means this audience, who haven’t been catered for with other company car benefits previously, now have access to affordable electric vehicles.”

This can also help employees cope with the cost of living, says Thom Groot, co-founder of The Electric Car Scheme. “Electric cars are cheaper to fuel, cheaper to maintain and are exempt from road tax,” he says.

The longer-term future of company cars is likely to be directly linked to the taxation of schemes, but the underlying attraction will remain. Jane Hulme, HR director at Unum UK, which has recently introduced its own electric vehicle scheme for staff, says: “Employees now expect to receive a broad availability of benefits and car schemes are a great addition to these offerings. The cost versus reward question is one that comes down to individual [employers].”

Others, though, are not so sure. As Matthew Gregson, executive director, UK corporate, at Howden Employee Benefits and Wellbeing, says: “Outside of roles for which a car is required for the performance of duties, an employer-paid car is coming under increasing pressure. Electric vehicle schemes, including [employer-paid], will clearly be part of the solution but, in the main, we believe we will see employers move away from company cars.”