- Modern company car schemes can offer a tax-efficient means to access new vehicles.
- A company car can be a useful attraction and retention tool for employers.
- Car salary sacrifice arrangements are popular with employees due to the low cost and access to low and zero-emission vehicles.
The Covid-19 pandemic saw many employees work from home, resulting in the number of people commuting dropping dramatically. Some continue to work from home, with Creds’ March 2022 study Less is more: changing travel in a post-pandemic society revealing that even if people who worked remotely go back to travelling for half of their working week, there will still be a reduction of 16% in car commute miles.
Many employers which offer company car schemes will have taken this into consideration and adapted their schemes according to usage and environmental impacts to reflect modern day wants and needs. So what does this look like?
Lifestyle perk
Company car schemes are often built into an employer’s reward package and tailored to suit the needs of its workforce. In addition to the employees that need a means of transport in order to do their job, perk cars are often offered to the wider workforce, as well as to senior members of staff. Due to the tax-efficient means of accessing a new cars, schemes can help attract and retain staff and allow them to move towards a more environmentally-friendly way of travel.
Leasing providers accommodate employees' needs and lifestyle more by offering a wider range of makes, models and fuel types and typically offer comprehensive services and options including maintenance and repair, accident management, roadside assistance, tyre and windscreen replacement, driver training, and risk management.
Daniel Broom, major corporate sales manager at Alphabet, explains: “As well as access to experts 24-hours a day, 365-days a year, modern company car schemes tend to offer intuitive self-serve apps and digital solutions with a host of helpful features and tools, such as scheduling maintenance, tracking mileage, and locating charge points. Guidance and the ability to test different cars should be provided.”
Today's car schemes
The needs of employers and employees have changed when it comes to company car schemes, resulting in their features changing too. In previous years, the focus was on providing employees with a company car as a perk, which often reflected the employee’s position. However, as the needs of employees have changed, so have employers’ strategies behind their car schemes.
As concerns about climate change, carbon emissions, sustainability and environmental consciousness have developed, many employers and employees now look for greener alternatives, explains Jessica Chapman, corporate sales director at LeasePlan UK.
“This has prompted a demand for company car schemes to offer more options such as electric vehicles as businesses align with this growing consciousness and adapt to the upcoming 2030 ban on the sale of petrol and diesel cars,” she says.
With the rise of remote work and the shift towards flexible-working arrangements in a post-pandemic world, how often employees travel and their need for a company car has reduced. Employers are now considering the necessity of traditional schemes and are looking at car-sharing programmes and flexible transport allowances instead.
The perception of cars as a status perk has changed over time, depending on employee age, industry and region; a car may not suit all modern lifestyles, preferences or locations. Despite this, their convenience and reliability can still hold considerable weight when deciding to join, or stay with, an employer.
Funding car schemes
Scheme funding options that are used today include contract hire, contract purchase, finance lease, employee car ownership and outright purchase.
Salary sacrifice schemes have surged in popularity; the British Vehicle Rental and Leasing Association’s January 2023 Leasing outlook report highlighted that there has been a 20.5% year-on-year increase in company cars funded through salary sacrifice to quarter three in 2022. In addition, an online Employee Benefits poll published in May 2022 found that 53% of employers currently offer their employees an electric vehicle salary sacrifice scheme.
Through a salary sacrifice arrangement, the employee covers the cost of the car, while the employer is responsible for taking the agreed amount from their gross salary each month before income tax and national insurance contributions are deducted for the contract duration.
Employers see salary sacrifice schemes as a simple way to provide a low-cost benefit while making low and zero-emission cars more accessible, explains Broom.
“These schemes attract benefit-in-kind (BIK) tax, which the employee is responsible for paying," he says. "BIK rates for electric vehicles have been fixed at 2% until the 2024/25 financial year. Lower BIK rates for plug-in hybrid electric (PHEVs) and battery electric vehicles have resulted in a considerable increase in the number of employees selecting electrified models over higher emission pure petrol or diesel alternatives.”
Around 90% of the cars leased through salary sacrifice are fully electric, says Sarah Worthington, head of fleet solutions at Select Car Leasing. The remaining 10% are plug-in hybrids.
“More fleets are steering towards PHEVs and electric vehicles, as these show huge reductions for fuel, maintenance costs and Class 1A national insurance contributions costs for businesses,” she says.
Green car choices
The environmental impact that a petrol or diesel car can have on the environment is leading employers and employees to embrace the electric options within their company car schemes.
As the 2030 petrol and diesel car sales ban approaches, there is a growing shift towards electric in the UK leasing market, explains Chapman.
“Available vehicles range from cost-effective and economical options to luxurious models, electric vehicles and hybrids,” she says. “The top three electric models in 2022 were Tesla Model 3, Tesla Model Y and Polestar POLESTAR 2, and the top two petrol and diesel models were Mercedes-Benz A-Class and Audi A3.”
While company car schemes have changed in recent years as fewer employees regularly commute and more consider the environmental impact, exploring hybrid and electric cars can be a more financially viable option for employers.
