Salary sacrifice company cars: Choosing vehicles and providers

Key choices in cars and providers

• Interrogate providers on car choice, discounts, support and maintenance package, and also whether they understand the organisation’s needs.
• Look for an adviser with a good track record in this area.
• Employers must decide whether to put a cap on emissions before choosing the cars for their fleet.
• Be sure to obtain ‘real life’ or total cost calculation breakdowns.
• Gauge how much support a provider will offer before, during and after the scheme’s launch and what sort of helpdesk will be made available.

Cars emitting 130g/km of CO2 and below

• BMW 520d EfficientDynamics saloon (119g/km)
• VW Passat and Scirocco BlueMotion (118g/km)
• Peugeot 3008 Hybrid 4 (99g/km)
• Citroen DSS hybrid (99g/km)

There are many factors an employer needs to consider when choosing cars for its fleet, including emissions ratings, tax allowances and the practical needs of its workforce

The makes and models of cars employers choose for a salary sacrifice scheme will depend on a number of factors.

These include the workforce demographic; the length and regularity of the journeys employees will make; how the scheme will fit in with any wider environmental targets; and how, or whether, it links with a more conventional executive company car scheme.

Graham Farquhar, employment tax partner at Ernst and Young, says the generational mix of the workforce may also be an important consideration.

“People, perhaps in their mid-20s, who have been paying off their student debts and are struggling to gather a deposit on a house, may find being offered a car through salary sacrifice an attractive proposition,” he says.
“The opportunity to get an eco-friendly car can also appeal to this generation. They are stylish and trendy and these are the sorts of vehicles they will be willing to be seen out in.”

Salary sacrifice schemes tend to work best with low CO2-emitting cars, which attract lower benefit-in-kind tax rates. According to provider Zenith, 112g/km of CO2 is the average emission rating for cars currently on order through its scheme, with 26% of them below 100g/km. Some 90% of the cars with emissions below 100g/km are diesels, and the remaining 10% are hybrid-powered.

In March’s Budget report, Chancellor George Osborne announced that from April 2013, the CO2 emissions threshold for the main rate of capital allowances for business cars will be cut from 160g to 130g/km, as will the threshold above which the lease rental restriction applies.

Fortunately, there is now a vast range of hybrid and low-emission cars to choose from; popular lines include BMW’s EfficientDynamics range and VW’s BlueMotion. Among recent launches, Peugeot has unveiled a diesel hybrid, the 3008 Hybrid4, Citroen has launched the DS5 diesel hybrid and Volvo has developed the V60 plug-in hybrid.

Cap on emissions

The exact make-up of a fleet, particularly whether it includes a cap on emissions at a certain level, will vary from business to business. These requirements will be a key part of the conversation an employer has with its provider.

It makes sense to go into some detail about the choice of cars the provider can offer, the manufacturers’ discounts it can obtain, plus the support and maintenance package. It can also be a good idea to arrange for a carbon footprint analysis to be carried out, as well as gathering some ‘real life’ calculations to illustrate the overall impact on take-home pay.

Harvey Perkins, a partner at KPMG, says: “The cars an employer chooses need to dovetail and fit into whatever traditional company car fleet it may be running alongside this scheme. Most organisations will have an open policy and will not want to restrict employees to particular badges or models.

“All leasing providers will have access to all manufacturers, but what might differ is the discounts they can get. So it makes sense to benchmark or compare vehicles between providers.”

Given that most providers will be pretty similar in terms of the basics of what they offer, the differentiation may come down to whether the employer feels the provider understands the organisation and is bringing added value to the table.

This is particularly important if the employer is bolting the salary sacrifice car scheme on to an existing flexible benefits package. In this case, it may be important to consider how both the fleet and flexible benefits providers, if the arrangements are managed separately, will work together.

Karen Lewis, auto solutions consultant at provider ALD Automotive, says: “An employer needs to be very clear with the provider on vehicle selection. It is not just about what vehicles it can access from which manufacturers, but understanding what the ‘total cost’ of ownership is going to be, ensuring the scheme really will be cost-neutral and that everything is going to be done correctly for the employee.”