Thought leaders 2010: The year ahead: Green incentives spark economy drive

Key points

  • The recession has led employers to scrutinise their company car and business costs
  • Many are focusing on corporate social responsibility and therefore on greener fleets
  • The tax regime around low-emission cars is causing employers to rethink which cars they offer and how they do so
  • It is worth putting company cars into flexible benefits schemes

Tax breaks and flex will help cut car costs, says Mike Moore, fleet manager at Deloitte

The recession has caused most organisations to seek cost savings, leading to fleet and business travel arrangements coming under increased scrutiny. This year is likely to see continued attention on fleet and employment costs, but with the prospect of a return to growth on the horizon and with some employers imposing pay freezes, many are looking to reinvigorate their benefits.

Businesses are also focusing on corporate social responsibility, particularly their effect on the environment. This has led to employers reconsidering their company car and benefits provision, with the tax regime incentivising them to provide, and employees to choose, ever-lower CO2-emitting vehicles. Employers that provide company car entitlement bands based on post-tax whole life cost (WLC) – which includes all costs of the car to the business, rather than just the lease rental – can make dramatic cost savings because two cars with the same lease rental can have WLCs thousands of pounds apart. This approach often results in the selection of more desirable cars with higher upfront costs, but with lower CO2 emissions and lower WLCs.

Cash alternatives are often out of kilter with the company cars provided, either because of historic practice, or because they are based on what others do in the market. Recalculating cash alternatives based on available company car WLCs may be an alternative way for employers to cut costs and provide a fair and consistent benefits structure.

Controlling costs

A nil-cost option for enhancing employees’ benefits is to make low-emission company cars available to the wider workforce. The key to controlling costs is to ensure the WLC of fully-outsourced vehicles is established for the business and that these costs are passed on to employees who elect to choose a car. One of the most efficient ways of passing on the cost is through salary sacrifice arrangements. Such schemes can be very attractive, particularly because the commercial and tax efficiencies of the scheme allow employees to access company cars at a considerable saving compared with acquiring like-for-like cars privately from their net salary.

Deloitte took this step in January 2009, making the option of a low-emission company car available to its entire UK workforce of 11,000, and introducing salary sacrifice based on WLC to our incumbent car scheme, available to senior staff through the existing flexible benefits platform.

Employers that currently run flex schemes may want to consider incorporating company cars into their benefits package. Employers that are looking to introduce a car scheme for their wider workforce need to ensure it will sit comfortably with the existing benefits policy, current car scheme (if applicable), and other business requirements. Consideration also needs to be given to employment tax and consumer credit legislation. An appropriately designed car scheme should accommodate all these issues.

The removal of the benefit-in-kind charge on electric cars for five years from April 2011 may attract employers with an urban-based workforce in the coming years, once the availability of vehicles and supporting infrastructure improves.

Looking forward, the need to remove unnecessary business travel will increase. The tax incentive offered by the government in respect of company cars is intended to encourage businesses to offer low-emission vehicles. The desired result is for low-emission cars to be used to undertake both essential business journeys and private travel.

Read more articles from Thought leaders: The year ahead