What are the latest trends in company car schemes?

Need to know:

Tax changes for low emission vehicles has increased the demand on company car schemes.
Employers may benefit from the perks of investing in an electric car scheme.
Due to the impact of the Covid-19 pandemic, organisations may be rethinking their company cars strategy.

Trends in company car schemes have been shifting based on changes to tax, low emission zones and Covid-19 (Coronavirus).

Employee Benefits 2020 research, published May 2020, found that 33% of businesses offer hybrid/electric vehicles to their employees. However, in terms of employees having access to an all employee-owned car scheme, 94% do not offer this benefit.

What are employers looking for?

Offering a company car or cash allowance can help businesses attract the best candidates or help retain existing staff at the organisation. The scheme can be used as an incentive to make employees feel rewarded and valued, leading to loyalty and high engagement. Additionally, the current lower tax rates on electric vehicles can make this incentive more attractive to employees.

Alison Bell, marketing director at Venson Automotive Solutions, says: “The benefit-in-kind (BIK) tax rates for electric vehicles (EV) is 0% in 2020-21 before returning to the planned 2% rate in existing legislation in 2022-23, despite plug-in hybrids options also seeing a decrease in tax payments, these will be attractive options to both employee and employer.

“Despite [that] the purchase cost of an EV is often higher than that of a traditional model, for running costs however, it seems that EVs are in the lead. According to Parker's Electric vehicles review, published in May 2020, electric cars travel up to three times the distance of their petrol or diesel counterparts for the same cost.” These perks of using an EV could be appealing to an employee.

Despite current tax rates, Keith Hawes, director at Nationwide Vehicle Contracts, has seen that the demand for employers requesting company cars is on the decline. “We’ve seen many employers take up personal contract hire because the big barrier over the past few years has been BIK tax rates to company car drivers, making these not worth having for the big vehicles due to the tax on emission.

“Consequently, we’ve seen a massive shift to personal leasing in the market, the only trend that we think will have an impact on company cars is the fact that the government has introduced 0% BIK for electric vehicles. Due to this, we’ve seen a significant uptake in electric cars, but this has changed since the Coronavirus lockdown began.”

Greener schemes

Hawes believes that both employees and employers are looking for a more hybrid electric range of vehicles for a company car scheme. "Due to many more businesses and employees alike understanding how much of an impact cars can have on the environment, more of our customers have been increasingly looking at electric vehicles to cancel this. We've seen this through a noticeable uptake in our hybrid and electric range of cars."

Andrew Garlick, business development manager at Hitachi believes that the benefits of investing in electric company car schemes can open up numerous opportunities for both businesses and employees.

"Due to the recent changes in the market, there's an opportunity for employees to get on board with the electric journey; it could suit their lifestyle and it would be more affordable than purchasing a new model outright," he explains.

"The benefits with an EV salary sacrifice scheme can help employees in making that transition and become cost-effective due to not paying any tax for the first year. A business can also benefit from this as they receive national insurance savings as well. It's not a perfect win-win but it's definitely close."

The benefit for employers

Alison Argall, business development director at Tusker believes that the employers will benefit from the recent changes to company car tax rates. She says: “This change will benefit those who are both looking for a traditional fleet of cars, or are looking to purchase low emission cars under a flexible benefits system.”

Argall believes that the Covid-19 (Coronavirus) pandemic could present an opportunity for employers to consider introducing a company car scheme, especially as the public have been requested to avoid public transport where necessary.

Katie Brown, marketing manager at Tusker adds that the use of company schemes for employees that need to use a mode of transport to get to work can be massively resourceful during this time.

She says: “We’ve seen many businesses benefit from having their key workers use the company car scheme, when transport is not the best option during this time. Due to the end of the Coronavirus pandemic being uncertain, businesses may look to find alternative ways for their employees to come into work.”

However, Hawes believes that schemes will continue to see a drop in demand. “With people now working from home a lot more, there will be fewer requirements for people to come into the office, with virtual meetings becoming more of a regular aspect of work," he suggests.

“More businesses may be looking for a personal rethink with the new virtual world taking place.”

Overall, Garlick believes that there is an opportunity for employers to embrace company car schemes. He concludes: "UK businesses can introduce salary sacrifice schemes to become more of a norm than a benefit. [Salary sacrifice schemes] can bring in a measure of control and ownership for both the employee and the business, more so than a cash allowance benefit.

"With employees engaging with alternative options to public transport due to the Coronavirus pandemic, a company car salary sacrifice scheme can give a workforce more control over what they want in a car model and how much they want to commit to it, with maximum financial safety for both parties."

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