Driving down the cost of company cars

tax laws in 2002 were widely tipped to spell the end of the company car. But
with new deals, greener wheels and poor public transport, driving is now back
in fashion.  Caroline Horn reports

the Government first announced that it would be introducing changes to the way
that company cars are taxed, many people wondered if company cars were about to
be taxed into oblivion.

Government wanted a taxation system that reflected a ‘greener’ message,
encouraging companies to use more fuel-efficient cars and to reduce mileage.
Instead of tax being based on the car model and business mileage, firms and
individuals would pay tax on the basis of carbon dioxide emissions.

the changes came into force in April 2002, many companies were already well
prepared. Andrew Cope, managing director at fleet management services company
Zenith, says: "People had researched the new tax laws and manufacturers
had started to introduce more fuel-efficient and environmentally-friendly cars,
so when the changes came in, a lot of people were ready."

Moore, sales development manager for Volvo Car Finance, says people driving
cars with carbon dioxide emissions of 215g/km or below – which is now the
majority of new cars – and who are also in the lower tax bands, will have seen
little or no change to their tax payments. The biggest tax increases affect
individuals in the higher tax bracket, who drive more business miles in cars
emitting higher concentrations of pollutants.

firms have tended to keep their company car fleets, there are a number of
options now available to drivers who have come off worst in the new tax regime.
The schemes that have emerged from car leasing firms are personal contract
purchase (PCP) schemes (also known as ‘assisted car ownership’ schemes),
whereby employees can ‘opt out’ of the company car scheme, and use a cash
allowance to pay into a personal leasing scheme.

a PCP, a car is still treated as a company car in terms of servicing and
repairs, but it is not a company car because it is in the name of the
individual. The individual makes regular payments for the car and to cover
running costs, but these can still work out cheaper than tax on a company car.

Employee Car Ownership (ECO) scheme is fairly typical. The employee takes out a
personal loan with Zenith to fund their chosen vehicle. They then pay a sum
that covers the running costs of the vehicle, which is based on the tax they
save by not having a company car. The company funds the remaining costs of the
loan repayments through a combination of tax-free reimbursement for business
mileage and a taxable car allowance. At the end of the contract term, the
employee can choose to pay a final payment and retain the vehicle, or sell it
back for a pre-determined price.

advantages of PCP schemes are reduced tax bills for the individual, and reduced
liability for the company. However, there are certain issues that companies
need to consider further, including concerns over accident claims if an
individual is hurt while driving for work. 
Some companies now offer generic insurance schemes, and insurers are
more willing to consider offering the company package to individuals.

the advantages will vary according to the type of company and driver, says
Cope. Many companies will therefore allow employees to choose whether they ‘opt
out’ via a PCP scheme, or keep the company car.

other significant change is a massive swing towards diesel cars, says Moore.
This is because diesel emits less carbon dioxide, so currently falls into the
lowest tax band of 15 per cent – although diesel also attracts a 3 per cent tax
supplement. However, as diesel creates other toxic emissions, the Government
may well increase the level of the supplement.

addition, the lowest banding of minimum emissions are due to go down next year
to 165g/km – and there will be further incremental increases until 2005, so car
drivers using diesel vehicles will not be able to avoid paying more tax on
their cars in the longer-term.

fleet operators and companies are still waiting to hear what will happen post
2005, and to find out whether the Government will hold the emission levels
agreed for 2005, or continue to push for even lower carbon dioxide emissions
through increased taxation.



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