Company Car Policy
The company car policy forms the bedrock of a good fleet strategy. This document controls who is entitled to a vehicle, the vehicle they can expect to receive and the rules for using the vehicle.
We recommend your company car policy covers the following:
General Background – objectives and terms of the policy document
Eligibility and Vehicle Allocation – who is entitled, choice list, trading up or down and cash allowance details
Company Car Tax – the implications of selecting a company car and how the individual will be taxed on the benefit.
Vehicle Ordering Process – how the employee will get quotes through to how the vehicle is delivered.
Running the Vehicle – how the vehicle should be maintained and how services such as tyres and glass replacement are accessed
Insurance – what level of insurance is provided and details of the policy
Fuel and Mileage – how drivers pay for fuel or get re-imbursement for business mileage
Change in Circumstances – how events like promotion and maternity impact on the vehicle provision
Vehicle Return – what happens when the vehicle is returned
Cash Alternative – rules and conditions regarding the cash allowance
Grey Fleet – when employees can use their own vehicle for business travel and the rules for use
Health and Safety – rules regarding health, mobile phone use, smoking in company vehicles
Trends and Recent Issues
It’s been a fluid landscape for HR professionals recently with a number of external changes influencing company car policy. The changes have impacted on both demand for the traditional company vehicle, the risks associated with fleet operations as well as changes to the view of benefits packages.
The business travel dynamic is changing as the mobility options are developed to satisfy new social attitudes, global issues such as clean air and climate change. In this blog we take a look at those factors influencing company car policy what you need to consider when making any changes
The impact of Covid-19 has been widespread and has been particularly severe on the global automotive industry. Many manufacturer factories have been closed. UK dealers effectively closed temporarily and all automotive related suppliers required to adhere to social distancing measures. It has been and will continue to be a challenging period with big changes required for businesses to be able to continue their normal activities. The wider business community has also been hit with a prolonged recession forecast by most economic commentators.
Many of the Covid-19 impacts are temporary and the industry will return to its’ previous position over time. However, the main consideration is what will the “new normal” be in the workplace and how will this impact the usage of company vehicles, and the types of vehicles required?
With flexible working being required where possible in the short term, how many of these policies will remain in place once the lockdown is relaxed? Flexible working may be the new normal or at least have a significantly bigger impact than pre-crisis. Policy areas this will influence will be the contracted mileage for vehicle leases (which will likely reduce) and also holding periods (lower mileage means the vehicle can be leased for longer without impacting operational use). The numbers of vehicles required may also reduce as employees and businesses see less of a requirement for the company vehicle.
Manufacturers and dealers will have some significant cash pressures and will look to increase sales as soon as possible. Expect to see some great deals on offer as the market emerges from lock down.
Pricing for company cars will also be impacted. Predicted downturns in the economy will likely have a negative effect on predicted second hand car values which could increase the lease price on some vehicles. This impact should be offset through additional discounts from the manufacturer but the impact will be different across different models but not in all cases. This means the volatility of pricing may impact the effectiveness of those policies operating fixed vehicle lists. Where possible, it is advisable to move to a flexible total cost of ownership (TCO) approach.
How fleets are operated will also need to change. The risks associated with operating vehicles are extended as a result of Covid19. There is an extensive list of advice provided by the government to address these risks and how to operate safely. The advice can be found here.
These do not just impact on company car users. Employees are likely to use their own vehicles more often in response to the challenges of traveling on public transport. This has broader implications for organisations as a whole so any specific Covid19 communications should cover all employees rather than just company vehicle users.
Company Car benefit-in-kind taxation
Changes include the introduction of 15 new company car tax bandings, 11 of which will be for ultra-low emitting cars.
From April 2020, the appropriate percentages for zero emission cars will drop from 16% to 2%, while those for cars with CO2 emissions between 1g/km and 50g/km will vary between 2% and 14% depending on the number of zero-emission miles the vehicle can travel.
Changes are designed to provide incentives for vehicles which can drive more regularly on battery power such as plug in hybrid vehicles (PHEV) and in particular all electric (BEV) cars.
If not in place, electric and plug-in electric cars should be considered for choice lists. With an ever expanding choice available electric vehicles are now becoming a real alternative for company car drivers. With very low company car tax they will also be a very popular choice so make sure any supporting infrastructure and policies are in place to support these drivers.
Review of all diesel cars on choice lists, to ensure the most CO2 efficient RDE2 engine models are included.
Electrification of the Fleet
Closely linked to the company car benefit-in-kind changes, there is an increasing demand for electric and plug-in electric company cars from employees.
Whilst the headline figures appear to be positive, there are considerations when implementing these vehicles onto a choice list.
Is the vehicle fit for purpose? Can the employee continue to do their job. Assessments need to be made; does the vehicle have a suitable operational range, does the operational cycle support periodic recharging and is the boot capacity suitable?
With either electric only, or a mix of petrol and electric power, how do we reimburse the employee for business mileage?
How do we need to support employees charging vehicles? What capacity does the employee have to charge the vehicle at home or at their normal place of work? How will the company charge the employee for workplace charging?
Car CO2 Emissions
Following the Volkswagen emissions scandal, there has been a global review of how vehicle emissions are tested.
The new standard for car CO2 emissions (Worldwide Harmonised Light Vehicle Test Procedure – WLTP) is now impacting the company car market, with many vehicle models official CO2 emissions increasing by over 5% compared with the assessment under the older NEDC emissions test.
Does the company car policy now fit with what vehicles are now available in the market? Have key vehicles have fallen off choice lists or are they still available within existing budget bands? Do the bands need to be adjusted to reflect the increased costs of provision?
What has been the impact on the employee’s car benefit-in-kind from these changes?
With continued uncertainty over the exact terms of our departure from the EU, the impact on the company car choice is still unsure.
Any unstructured exit could increase trade tariffs in vehicles imported from Europe. This is likely to increase the cost of cars being imported from Europe whilst non-European car manufacturers could benefit from a reduction in tariffs.
Companies should undertake a review of car choice and policy as soon as the exit terms are known. Major cost changes should be incorporated and the refreshed list of vehicle manufacturers included on the choice list.
In the event of a no-deal scenario, it is likely that the supply of electric vehicles from European manufacturers will be restricted. Manufacturers have EU wide quotas which they need to fill and the UK will no longer contribute towards these targets. Electric vehicles from outside the EU will then become more important to fill in the gaps in demand.
Vehicle Salary Sacrifice Schemes
Changes in tax legislation in April 2017, via the OPrA policy introduction, have resulted in the majority of tax benefits of using salary sacrifice for cars being removed except for very low CO2 emitting cars (sub 75g/km).
Review existing schemes to see if they still offer a benefit to your employees at a cost acceptable to the business. If you want to provide an all employee car salary sacrifice scheme then consider an ultra-low emissions or look to utilise other structured schemes, such as a staff personal contract hire (PCH) scheme.
With so many recent and upcoming changes, it is an ideal time to review your fleet strategy. EVP Solutions recommend regular reviews of car choice and relevant policies. This will help to ensure the vehicle benefit level is being maintained from your company car scheme and any new risks are covered.
If you would like some assistance with your fleet strategy or specific advice on your company car policy then please