Can offering a company car save costs and at the same time improve employee benefits?

In our previous communications we have sought to highlight the risks and opportunities associated with running a traditional company car benefit programme: - We focussed on the key cost drivers and looked at strategic changes that could be made to place downward pressure on rising costs. 
Critical in our focus was the increasing burden of National Insurance & Benefit in Kind charges combined with rising fuel costs - and how these impact fleet costs. 

How to Save with Salary Sacrifice/Exchange 

In this, our final communication prior to the CFO forum we review an option that will allow you to take advantage of these increasing costs.  We consider how employers can produce substantial savings on the PAYE bill and at the same time improve the overall benefits package to your employee base through the introduction of a company car salary exchange programme for your wider employee base – not just those who currently receive a company car benefit.

Salary Sacrifice/Exchange schemes have been available in the market for several years now and have become of increasing interest to companies looking to provide flexible benefits to their employees.

A sacrifice/exchange happens when an employee gives up the right to receive part of cash pay and, in return, receives a non-cash benefit: in this case a Company Car. The sacrifice is achieved by varying employee terms and conditions relating to pay.

The schemes work on the basis that the employee exchanges gross salary in return for a company car which leads to savings of tax and NI contributions on the salary sacrificed. However, this is off-set by benefit in kind tax on the company car. Overall the Company will secure savings as the cost of providing the employee with a company car is less costly than the alternative cost of providing the pre-sacrificed salary.


Recent changes in tax and the introduction of more premium vehicles under the 120g/km BIK threshold have assured that benefits available now are far greater than has previously been the case. 

Benefit for Employees     

The benefit for employees is evident.  For the employer it will depend upon the level of take up across your employee base - typically 3-10%.  With a minimum employer saving of £391 per vehicle the level of savings achievable are set out as follows.

Evidently these values and outcomes will vary between employers and will be affected by the approach to risk and benefits that each employer would adopt.  It is also a fact that not all organisations are suitable for such schemes.  Any decision to offer a company car salary exchange scheme must be preceded by rigorous feasibility & scheme design activities and the production of a robust business case.  LeasePlan is well placed to undertake such activity on your behalf based on our past experience.
A Salary Sacrifice scheme is one of the few genuine triple win solutions you might provide in your organisation:

•    Profit – with the right design you will reduce your PAYE costs year on year.
•    People – every employee can secure a valuable added benefit that saves them tax and NIC
•    Planet – with the right design you will see older polluting vehicles replaced with new, CO2 efficient alternatives.

As this is our last publication leading up to the CFO forum we would like to thank you for reviewing the information we have provided so far: There are many opportunities to make significant inroads into reducing fleet costs and enhancing employee benefits.  Careful policy design which best leverages the effects of the UK taxation regime – both at the corporate level and for the individual employee – is at the heart of the matter.  

We have only been able to provide a ‘flavour’ of the many opportunities within these communications. 
Our consulting team will be attending forum and look forward to meeting you person.  We hope to discuss your current strategy, to offer an insight into measures to enhance it and to show how LeasePlan will be able to support your plans. 

Lesley Slater: Brand Director LeasePlan

Gridlock Britain

Motorway travel is getting ever more expensive
Image Creds: Stock.xchng

The Daily Express has reported that the UK’s roads are some of the most gridlocked in Europe. This news will be unsurprising but worrying for fleet managers, as delays can be costly to business, both in terms of time, and petrol used.
 

Unsurprisingly London came out as the worst UK City in terms of congestion, with 34.5 per cent of main roads at a crawl during the day. Perhaps one of the more surreal comparisons afforded to the speed of London’s traffic has been the assertion, from Thisislocallondon, that the average speed of traffic in the Capital was the same as a running chicken.
 

Interestingly, the problems seen in London come despite ONS statistics that suggest 43 per cent of Londoners do not have any access to a car.

 

UK Wide Problems   

 

As well as the problems suffered by London, several other UK cities were placed in the top 20 for jams. Surprisingly Edinburgh, despite its relatively small population of less than half a million, was the second most congested UK city at number seven. Manchester took third, in tenth place overall.
 

Outside of the UK, only Brussels and Warsaw were more congested, however it should be noted that France had four cities inside the top ten, with Toulouse, Lyon, Marseille and Paris all scoring poorly.
 

This research makes worrying reading, and LeasePlan would always advise planning routes before travel to help avoid traffic hotspots. To a degree, traffic jams are an inevitable part of a business driver’s day, but efficient driving and better vehicle choice can help mitigate the increased fuel expenditure that is associated with long periods in slow-moving traffic.

What Strategic Changes Can be Made to Mitigate Rising Operational Fleet Costs?

There is an alarming increase in operational fleet expenditure, and as our recent publication highlighted, taxation and fuel costs are set to rise substantially in the foreseeable future painting a very disconcerting forecast for decision makers.
 

Yet, there are various examples and substantiated case studies that have proven that by adopting a strategic approach to managing fleet, companies can indeed mitigate and in most instances reduce their overall fleet expenditure without reducing the benefit level.

Traditional procurement & management models focus predominantly on the finance and maintenance elements of fleet, but as the above breakdown indicates – there needs to be concerted focus on all cost aspects when formalising a fleet procurement strategy.
 

With fuel, national insurance, VAT  and Corporation tax recovery rates all directly related to the carbon efficiency of your fleet  – surely then the procurement model should at the very least incorporate all factors when deciding what is being offered to employees.
 

Working with our portfolio of clients, we have developed a costing/procurement methodology which incorporates all knows cost factors. The benefit of this approach has not only been proven in terms of cost reduction, but due to the positive CO2 enhancements made by premium manufacturer brands it is allowing our clients to also improve the selection of vehicles offered.

The net effect from adopting the aforementioned methodology has been as follows:-
•    Since 2008 our clients’ average fuel costs have only increased by 1.11%, even though fuel has increased by more than 15% in the past year alone. This was done by introducing more fuel efficient vehicles and working with clients to manage driving behaviour. The average vehicle ordered in 2011 delivers >55miles per gallon, whereas in 2008 the average was below 44miles per gallon
•    Since 2008 our clients have managed to contain Class 1 A National Insurance Increases by reducing their average fleet emissions from 154g/km down to 125g/km
•    In the same token we have managed to reduce finance costs by motivating more client’s/drivers to drive sub 110g/km vehicles, resulting in 100% writing down allowance in the first year of depreciation
 

The above are but a portion of the considerations that need to be incorporated in your fleet strategy and there are various other proven methods to manage operational expenditure.
 

In our last publication leading up to the CFO forum we will focus on other solutions that could be considered, including the introduction of  company car salary sacrifice programmes to reduce employer national insurance costs, improve your company’s environmental credentials and enhance your employee benefit package.
We look forward to speaking with you at the forum and reiterate our commitment made in terms of a free high-level fleet review to interested companies.

Lesley Slater
LeasePlan Brand Director

This post first appeared on the CFO Forum Blog on 02.06.11

Council Reclassifies Pot-Holes to Cut Costs

Pitted roads affect motorists UK-wide
Pic: Channel4.com

Lambeth council in London recently announced that potholes under 40mm in depth will no longer be filled in, according to a report in The Telegraph.  This marks a significant shift, as previously holes as shallow as 25mm were classed as potholes requiring action. The new measure is designed to cut costs, and coincides with parliamentary research that suggested the cost of repairing every pothole on Britain’s roads has soared to over £13 billion.
 

Repair costs have been exacerbated by last winter’s record low temperatures which contributed to the overall decay of road surfaces around the UK.  The worst roads for potholes in the UK have been revealed, with Northumberland’s B6343 and Holme’s Fieldhead Lane in West Yorkshire achieving the dubious honour.
The Telegraph goes on to report that there are now estimated to be 10 potholes for every mile of road, which totals around 1.6 million across England.

Concern

 

This is an increasing concern to business drivers, who are likely to come across hundreds of potholes in their daily travel. If more councils follow Lambeth’s example in restricting repairs, fleet managers may see an increase in the amount of damage done to vehicles by these deeper holes.
 

LeasePlan UK’s CEO, David Brennan, has been vocal in advocating greater investment in Britain’s roads.   Following the budgetary allocation of an additional £100 million for pothole repair in March, he commented this was likely to be nothing more than a “drop in the ocean.”

The Car is Still King

The car remains the commuters' choice
Pic: LeasePlan

The overriding importance of the car over other modes of transport to keeping Britain moving is underlined by recent ONS data showing that more than three in four Britons outside London go to work by car. 

The Times (£) reports that car use by commuters is 76 per cent in the rest of the UK but only 35 per cent in the capital. Outside London 6 per cent go to work by bus and a mere 2 per cent by train, while in London the figures are 12 per cent and 20 per cent respectively. 18 per cent use the Tube.
 

The figures are from the back end of 2009 when the country was in the depth of recession but the car is undoubtedly still king when it comes to getting Britain to and from work. If you don’t live in an urban hub or within easy reach of practical public transport, the simple truth is that the car is the best way to get to work.
 

As well as taking measures to encourage greater use of public transport, policy chiefs should be freeing up the roads to get the economy moving as a priority.