Will government’s changes see company cars decline?

Are the government’s expected alterations to mileage payments, and health and safety issues around employee car ownership plans, causing these schemes to decline in popularity, asks Nick Golding

The government is expected to announce changes to the way that authorised mileage allowance payments (Amaps) are calculated once a consultation exercise on the subject closes on 31 July. The objective behind the consultation is to create a taxation system that coaxes company car drivers into greener vehicles.

Amaps currently allow employers to reimburse drivers who use their own cars for business miles – including those in receipt of cash allowances or are in employee car ownership (Ecop) schemes – at a rate of 40p for the first 10,000 miles and then 25p thereafter; free of tax.

Whatever the result of the consultation, one significant change is likely to be that employers will be required to record more information about the cars employees drive. Inez Anderson, tax director at Smith & Williamson, says: “No matter what changes are made around Amaps there will be more administration involved, and more complexity for employers.”

This means it is conceivable that many employers may decide they would be better off providing a more structured company car scheme, where Amaps are avoided and the employer can dictate which cars staff are entitled to. Andrew Dawson, manager, product and strategy at Masterlease, says: “One potential outcome [of the consultation] would be that more companies would turn to structured company car schemes.”

The administration involved in Ecops has already prompted some organisations to make the move back to traditional company car schemes. Barclays, for example, did so in 2005 for its business need drivers. Although it still operates a cash allowance plan for its perk drivers, the bank believes it has dramatically cut the amount of administration involved in using Amaps to reimburse staff. Caroline Sandall, fleet manager, explains: “The administration burden surrounding tax became too onerous, and it is far simpler to administer a company car scheme.”

The ongoing debate over the health and safety of drivers in Ecops could also affect the popularity of the scheme. As employers are ultimately responsible for drivers in the event of an accident, some may use this as an excuse to move away from Ecops into a more structured programme. “We are sure people are becoming more concerned with health and safety issues, and if you use a provider for a straight company car scheme you will know that the vehicle is fit for purpose,” says Dawson.

Yet the move back to a company car scheme may not always be a simple one for employers, particularly if the level of choice that is associated with Ecops has become embedded in the organisation’s culture and has come to be expected by staff.

Richard Schooling, commercial director at fleet firm Alphabet, explains: “Culturally, some [organisations] will have moved too far down the Ecops road, and are offering a high level of choice. It may be a step too far to get drivers back into company cars.”

However, there is speculation that some employers could compromise by limiting the choice offered to staff in an Ecop, and providing a scheme that lies somewhere between a traditional company car scheme and Ecops. “There is a huge likelihood that more organisations will limit the options available to drivers, and it may well be written into an employment contract that the employee needs to have a four-door car or that it [must be] kept serviced regularly,” explains Anderson.

This won’t require a drastic transformation of existing Ecops as it will just be an extension of the current rules. “Organisations already have some rules, generally quite loose ones [such as] only allowing drivers to buy cars that are less than seven years old. So if you are prepared to put this rule in, there’s nothing stopping you from putting other rules into an Ecop as well,” says Schooling.

The possible increase in administration around Amaps and Ecops, alongside growing fears around employees’ safety in cars they have had the freedom to choose themselves appears to be pushing employers to reconsider offering pure Ecops. Instead, they may look at moving to a traditional company car scheme, while others may build some structure into existing Ecops.

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The consultation on how Amaps should be used to reimburse drivers who use their personal cars on business closes on 31 July.

By the time the pre-budget report is announced at the end of the year, it is hoped the government will have decided how employee car ownership plan drivers will benefit from tax-efficient reimbursements.

The fact the government wants to keep a more watchful eye over Ecops could mean a rise in the already high level of administration involved in Amaps and Ecops.

The need to protect drivers from health and safety risks associated with driving cars that are not fit for business purpose could mean that company car schemes increase in popularity.