Many companies are examining their benefits spend to see if savings can be made. Nick Golding looks at how company car costs can be controlled.
The company car is one of the most visible and therefore contentious benefits out there. Sadly for many drivers, it has found no place to hide during the ongoing cost scrutiny. All aspects of fleet operation must be investigated, says Colin Tourick, fleet management consultant at Colin Tourick and Associates, and author of Managing your Company Cars.
“It is important that employers look at every single thing associated with their company car scheme,” he explains. “There are always ways to help control costs in every area of fleet.”
Q How can fuel costs be controlled?
A The cost of fuel will obviously depend on the size of the fleet. However, by cutting out drivers who are still permitted to claim payments for private fuel as well as business fuel, employers can start to bring down the overall fuel bill. By removing free private fuel, drivers will be far less likely to waste fuel as they will be the ones paying the bill.
There should be very few people getting free private fuel when driving company cars today,” says Tourick.
Q Are fuel cards the answer to reducing costs?
A By using fuel cards, employers will be able to easily monitor where and when employees are filling up and the amount they are spending on fuel. Accurate data collected from the cards mean that companies can target certain drivers who appear to be over-spending on fuel or wasting the fuel they have.
Nick Chambers, implementation consultant at The Miles Consultancy, says huge savings can be made with accurate data from fuel cards.
Provided employers back up the use of a fuel card with proper record-keeping and data, we think that such a system can help cut fuel bills by around 20%,” he says.
The fuel card system is also far more organised and less of an administrative burden than the traditional receipt method, adds Tourick. “Fuel cards are essential: they are the one tool that allows the measurement of actual miles driven and the fuel consumed,” he explains.
Q How else can technology help reduce overspend on company cars?
A In the same way that fuel cards help employers to explore the spending habits of drivers, other technology can also give companies the edge over staff when it comes to spending on fuel. For instance, providers to the fleet market have developed expense claiming technology to flag up drivers who are claiming cash for business journeys they could not have possibly completed.
Chambers explains: “We provide ongoing audit work, and check whether the trips that people are doing actually make sense. We look at where a driver’s home is, how many miles drivers are claiming for, and ask whether it is plausible that staff have driven the miles they are claiming for.”
Over the course of a year, such accurate control over the number of miles drivers are completing can help to cut out costly fake claims that may have gone unnoticed in the past.
Q Can tight rules around liability for accidents help reduce costs?
A Strict rules covering who is liable for payment when drivers of company cars are at fault for road accidents can also cut out unnecessary car expenditure.
Drivers should not have a licence for having as many accidents as they want; they should have incentives to drive safely,” says Tourick.
To encourage safer and more cost-effective driving, employers would be wise to enforce a policy where they pay for the first incident, but nothing else following, recommends Stuart Menzies, sales and marketing director at Contracts Leasing.
It should be in all policies that the first prang is free but after that, drivers have to pay the excess. I think that’s reasonable as it says ‘treat this car as if it’s your own’. Companies shouldn’t have to pay out for every accident,” he says.
Q How can insurance be altered to cut fleet costs?
A Another cost-saving option is to only insure car drivers up to the statutory required third party level, and save the large sum of cash that would normally be spent on buying fully comprehensive cover. The money saved could be used to deal with isolated incidents as and when they occur, argues Tourick.
Companies don’t have to take full cover,” he explains. “It’s voluntary but many just pay it out year after year, then go through a year of accident-free motoring and could have kept that money in their pocket.”
Q Can companies negotiate better deals with manufacturers?
A The wider the range of company cars that drivers can choose from, the higher the cost of sourcing those cars will be for the employer. However, if a company can go exclusively to one or two manufacturers, the cost incurred by the employer can be much lower – in some cases by 10% to 25%, says Menzies.
If you have a sizeable fleet,many manufacturers will be willing to work with you on cost to ensure their cars appear in your fleet list,” he explains.
Q Is a cash allowance more advantageous?
A As an alternative to the traditional company car option, some firms have chosen to offer a cash allowance schemeto avoid company car tax and national insurance charges.
Under cash allowance, the driver is awarded a sum of money by their company to spend on a car, which is then technically owned by the employee, or, if leased, by the leasing company and not the employer. When this is the case, company car tax, which varies depending on the vehicle, is not applicable to the overall cost of the car.
Money box
Company cars are viewed as a benefit, and employers may have to pay class 1A national insurance contributions (NICs) on them if certain employees use them privately. The current rate is 12.8%. For example, if this is the case, then NICs apply as follows: During the tax year 2008-09, an employer provides company cars to 25 employees. The cash equivalent figure reported on each employee’s P11D expenses and benefits form is £3,000 for the car benefit.
To calculate the amount of Class 1A NICs due:
- Multiply £3,000 x 25 = £75,000
- Multiply the figure by the Class 1A NICs percentage rate
- £75,000 x 12.8% = £9,600
- Class 1A NICs due = £9,600
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