What impact has the pandemic had on company car schemes?

Need to know:

  • The experience of the pandemic, and a year of home and remote working, will probably reduce business mileage in the future.
  • However, while this is unlikely to mean company car schemes will disappear altogether, they may become ever-more focused on the most tax-efficient electric and ultra-low emission vehicles.
  • Cash allowances may remain popular for their flexibility and as an alternative option, but employers also need to be wary of their potential pitfalls.

Car use in the current lockdown may not have fallen as much as it did last spring, declining by some 22% compared to around 40% last March, according to the RAC. But it is fair to say that, for many of us, our cars have spent much more time than usual over the past year sat idly in our garages, driveways or out on the street.

Irrespective of how, or when, we finally emerge from the pandemic, the forced home-working experiment of the past 12 months has also put a question mark over how much, and how often, people will expect to be travelling for work when things do gradually return to normal.

This, in turn, poses profound questions for the company car market, especially cars provided as a perk to often senior-level employees who aren’t necessarily driving regularly anyway.

Will more ‘hybrid’ models of working – where employees split their time between home/remote offices and physical workplaces – dampen demand for car schemes? Or might a reluctance among employees to return to potentially crowded public transport networks actually fuel a greater appetite?

Take stock

Unsurprisingly, many employers and providers have spent the past year trying to make sense of this uncertain future, highlights Nick Jones, strategic account manager at Hitachi Capital Vehicle Solutions. “A lot of our customers have been using this time as an opportunity to take stock of what vehicles they operate on their policy and who will or should be eligible in the future. Where do you draw the line between a perk and essential user, for example? With how we will be moving forward in terms of working more remotely and using video conferencing facilities, I do anticipate business mileage will come down,” he says.

Although it is unclear how the pandemic will change work in the longer term, there is nevertheless optimism that car schemes, perk or otherwise, will remain an attractive benefit.

“While there may be lower demand for car-type benefits, I do not believe they will completely disappear,” says Andrew Drake, client development director at Buck. “The saving grace, to my mind, will be the move to electrics.”

Tax rates

The key here is the fact benefit-in-kind (BIK) company car tax rates for pure electric vehicles were slashed to 0% for a year last April, and will rise to just 1% from this April, while ultra-low emission vehicles (ULEVs) now also benefit from seriously low BIK rates, so making both a very tax-efficient option.

“As well as the electric vehicle piece, we have seen company car schemes refocusing on greater flexibility in terms of options for the employee,” says Chris Chandler, principal consultant at Lex Autolease. “So we’re developing salary sacrifice and affinity car schemes alongside our traditional leasing model to meet those changing demands and the requirement of a wider choice for employees. But, overall, we’re still very much getting that a company car is seen as a valued remuneration element,” he adds.

Cash alternatives

What about as cash or allowances instead? Could we see this becoming a more popular alternative? Yes and no, suggests Clive Buhagiar, head of operational services at Alphabet (GB). “We were previously seeing a trend towards employees opting for a cash allowance, but this shifted again after the new BIK tax rates were introduced in 2020. Since then, there has been a resurgence of traditional vehicle leasing and salary sacrifice schemes, as there are significant taxation benefits,” he says.

The danger with cash allowances for the employer, however, is that it loses control over what type of vehicle its employees are driving, including how regularly it is being maintained and how environmentally friendly it is, points out Jon Smith, relationship director at Zenith. “Cash allowance uptake creates the well-documented issues around grey fleets of older cars with higher emissions and the responsibility to track everything from insurance to MOT,” he says.

Ultimately, while any new post-pandemic hybrid working model may mean the days of regularly hammering up and down the motorway are numbered, and probably won’t be missed, people are still going to need to get from A to B for work.

“Remote working can work if you are dealing with colleagues or people you know well. But in a sales environment that personal contact is still important,” emphasises Lex Autolease’s Chandler. “[People] will still have business meetings; [they] will still have conferences and networking so people can find out what is going on in their industry. So I do think a lot of those business elements will come back.

“What we’re seeing from our customers is not, ‘do we need vehicles anymore?’. It is realigning to ‘what is fit for purpose?’ and, from there, a big focus on electrification,” he adds.