The complexities of company car schemes
May 28, 2008
There are many day to day headaches for HR or personnel professionals, and managing a company car scheme can certainly be one of them. There are many implications relating to the provision of company cars, including those relating to taxation, and health and safety legislation.
A company car is provided to an employee as part of their overall reward package. Usually, only employees with a need for a car in their work are entitled to this benefit, although sometimes the provision of a car is related to the employee’s level within the organisation or simply as a personal benefit to be used for private use rather than business. When a car is made available for private use instead of or as well as for business use, a tax charge is made to the employee (as long as they earn £8,500 or more per year). Generally, taxation is lower for cleaner and cheaper cars, to encourage more environmentally friendly options.
There are different ways in which to manage a company car scheme. Some employees prefer to receive an allowance in lieu of a car, and the payments are subject to Income Tax and National Insurance contributions in the same way as their salary. Whilst this can seem like an attractive option, the employee is still responsible for repairs etc, and some people prefer to have the comfort of knowing they are covered in the event of a break down, which can be built into the company car option. Another issue with the car allowance option is the responsibility for health and safety that is still on the employer for employees driving in their work, even if the car is bought and owned by the employee. It is possible that an employee will purchase a car that is not fit for purpose, whereas an employer has more control over the quality and safety of cars in a car providing scheme.
Companies can purchase company cars outright, which means the car then becomes a company asset, and the employer has to manage the scheme including administration, tax and insurance, and repairs. The trick with this is to work out the car makes that will provide the most value, i.e. which are low in tax, and which will retain the most value, as we’ve all heard the stories of cars that drop a massive chunk of their value the minute they’re driven off the car lot. Another popular option is business contract hire, where the company hires the car from a leasing company and pays agreed monthly payments. This option takes away all the administration of the scheme and there are different options for the inclusion or exclusion of insurance and maintenance costs, although the employer is still responsible for health and safety issues and should therefore have a clear relationship with the leasing company and a good health and safety/company car policy. This scheme means the company does not own the cars, but it does take away the issue of depreciation, and also means the costs of the company cars can be spread evenly across the year.
There are so many things to consider when trying to set up or manage a company car scheme, but one thing’s certain, you will need a lot of time and patience if this is part of your role!
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