Fleet management glossary: the jargon of company cars

Don’t know your AECOP from your AMAP? Our jargon buster will help guide you through the world of fleet management.

A

Advisory fuel rates (AFR)
Guidelines recommended by HM Revenue & Customs (HMRC) as fuel-only mileage rates for business travel in company cars. The rates apply where employers reimburse employees for business travel in their company cars, or require employees to repay the cost of fuel used for private travel.

Affinity company car scheme
An arrangement aimed at helping staff buy cars for their own use. Employers use volume discounts to purchase cars that are then sold or leased to staff at competitive rates. Staff can usually also choose from previously owned or returned lease cars via a dedicated website or telephone number.

All employee car ownership scheme (Aecop)
An Aecop allows all employees who are not entitled to a company car of any description to purchase a vehicle at a discounted rate. An all employee car ownership plan usually favours larger companies which have a strong buying power with car manufacturers, John Lewis and the BBC both operate schemes, as does Deloitte (see article on salary sacrifice).

Alternative fuels
A range of low-emission energy sources to petrol and diesel for passenger cars and commercial vehicles. Includes as bio-diesel, bio-ethanol, fuel cells, hydrogen and liquid petroleum gas (LPG).

Annual contributions
The amount an employee is required to pay as a condition of the car being available for private use. This is deducted from the taxable benefit for the year in which the payments were made (see Benefit in Kind).

Approved mileage allowance payments (Amap)
An employee who uses their own car for business use may receive a mileage allowance from their employer, expressed as a rate per business mile. The Inland Revenue allows up to a certain level of allowance to be tax free.

Since April 2002 the rates have been:



  • Up to 10,000 miles per annum – 40p
  • Over 10,000 miles per annum – 25p

Amaps differ from Advisory Fuel Rates in that they apply specifically to privately owned vehicles used for work related driving and not company cars.

B

Balloon payment
A large final payment under a finance agreement normally in line with the predicted value of the car.

Benefit in Kind taxation
In 2008, the government introduced a new 10% banding for BIK taxation for vehicles emitting CO2 at 120g/km or less. A 3% diesel supplement remains in place.

BVRLA
British Vehicle Rental & Leasing Association (BVRLA) is the professional association for providers of vehicle rental, leasing and fleet management services for passenger and commercial vehicles.

C

Capital allowances
A statutory tax deduction for depreciation. The allowance is given annually and is 25% of the written down allowance, this is restricted to £3,000 per expensive car. With leased vehicles, the fleet management company, as owner/lessor of the vehicle, will claim capital allowances, which will be passed back to the customer in the form of reduced rentals.

Cheap car
A car that costs less than £12,000 for tax purposes (see also Expensive Car).

CO2 emissions
The Kyoto Protocol established in 1997, committed signatory nations to cut greenhouse gas emissions to 5% below 1990 levels by 2008-2012. Carbon dioxide emissions (CO2) from vehicles are a factor in global warming, so company fleets have been a focus of measures such as CO2 emissions-based Benefit in Kind company car tax, Road Tax (Vehicle Excise Duty) reforms and the London Congestion Charge.

Consumer Credit Act
The Consumer Credit Act 1974 requires most businesses that offer goods or services on credit or lend money to consumers to be licensed by the Office of Fair Trading (OFT). The Act requires credit and hire arrangements to be set out and to contain information that assists the consumer to be fully informed about the details and obligations of the agreement being entered into.

Contract hire
A fixed term agreement for the rental of a car at a pre-agreed fixed monthly cost over a pre-agreed period and mileage (eg 36 months/60,000 miles). The car is returned to the funding company at the end of the period. The agreement will include road fund licence and also frequently the provision of services such as maintenance. The vehicle ownership is with the funding company, so the vehicle remains off the fleet operator customer’s balance sheet.

Contract purchase
A deferred purchase agreement normally with a balloon payment. The agreement may include services such as maintenance, and may include a guaranteed minimum resale value offered by the funding company. The vehicle ownership remains with the employer.

Corporate Manslaughter
A company may be found guilty of corporate manslaughter if it causes a person’s death because of the grossly inadequate way in which its activities, including work related driving, are managed. If found guilty, the company may be subject to an unlimited fine, a court order to remedy a particular failing and/or be required to publicise the offence in a manner specified by the court. Company directors could face prison.

E

Employee Car Ownership Schemes (Ecos)
Ecos allow an employee to spend a certain amount of cash, determined by their employer, on a car of their choice through a structured scheme of monthly payments. The employee signs a contract with a car leasing company to purchase the vehicle over a set period, usually two or three years, and mileage.

Employees are exempt from company car benefit-in-kind tax as the title of the vehicle passes to them under a credit-sale agreement. Drivers also qualify for HM Revenue & Customs approved mileage allowance payments (see Amap).

F

Fair wear and tear
A contract hire agreement will stipulate that that the vehicle is required to be returned to the lessor in good condition, with fair wear and tear relative to its age and mileage. The BVRLA (British Vehicle Rental & Leasing Association) publishes a Fair Wear & Tear Guide that most member fleet management companies use as a guideline.

Finance lease
A finance lease spreads the capital cost of vehicle acquisition over a pre-agreed period, when the vehicle reverts to the funding company. Any residual risks/rewards are reflected in a final “balloon” payment to the funding company.  Vehicle ownership remains with the funding company.

Fuel card
Fuel cards are used at filling stations to purchase fuel. Benefits include online reporting systems to assist employers in analysis of fuel usage and fraud prevention.

Fuel scale charge
Where an employee is provided with free fuel for private use, this is regarded as a taxable benefit. Employer’s National Insurance contributions will also be incurred. To provide free fuel to employees, companies need to advise HM RC by completing forms P46 (car), P11D and P11D (b).

G

Grey fleet
The use of employees’ own cars for business purposes.

H

Hybrid vehicles
Vehicles powered by a combination of petrol or diesel and electricity. Hybrid electric vehicles recharge their batteries during normal operation.

L

Lease purchase
A funding agreement where the company acquires ownership once all the payments have been made. Part of the capital cost of the vehicle may be deferred into a ‘balloon’ payment at the end of the agreement. The customer assumes the residual risk.

Lessee
A customer in a lease agreement.

Lessor
The owner of goods in a lease agreement.

P

Personal contract hire (PCH)
A personal finance agreement for the use of a car without the lessee obtaining the title or ownership. Can include maintenance. As the lessee is a private individual, VAT cannot be reclaimed on monthly rental payments.

Personal contract purchase (PCP)
A personal agreement for the purchase of a car by instalments through a finance company. At the end of the contract term the driver may keep the car by paying the balloon payment, extend the contract, return the car or part exchange it.

Pool cars
In order to be a pool car for taxable benefit purposes, a car must:



  • Be available and used by more than one employee.
  • Not be used by one employee to the exclusion of others.
  • Not normally be kept overnight by an employee.
  • Not be used privately

R

Residual value
The VAT-inclusive amount for which the car can be sold for at the end of the contracted period.

S

Sale and leaseback
The lessee sells vehicles to the lessor and continues to use them under a leasing agreement, usually contract hire.  The lessor owns the vehicles, which remain off the lessee’s balance sheet.

Smoking ban
All enclosed public places and workplaces in England have been smoke-free since July 2007, including company cars, pool cars and vehicles used for business purposes. Vehicles that are smoke-free must display the international no smoking symbol (at least 70 mm diameter). Smoking is allowed in vehicles that are for the sole business use of the driver and in convertible vehicles if the roof is down.

V

VAT
On business cars and commercial vehicles: VAT is not reclaimable on the purchase of cars for business, although some input VAT can be reclaimed for pool cars if only used for business. VAT can be reclaimed on commercial vehicles (trucks, vans etc.) If VAT is recoverable then output VAT needs to be charged on the resale of the vehicles and a tax invoice raised if the customer is VAT registered.

On leased vehicles: VAT may be claimed on 50% of the finance element of a lease charge for business vehicles also provided for private use.  VAT on maintenance and other services is recoverable in full. Leased commercial vehicles are not subject to input VAT restrictions.

On fuel: Businesses that pay for fuel for their employees’ business and private use pay a fixed VAT charge based on the cubic capacity of the engine and fuel type. This allows businesses to reclaim VAT for both business and private fuel use. The fuel scale charge does not apply for businesses that provide fuel only for business purposes, but detailed records and receipts are required by HMRC in order to claim.

Vehicle excise duty (VED)
Also referred to as road fund licence. A six-band system was introduced for new cars registered for the first time from March 1st 2001. A further band for higher CO2 emission cars (226g/km and above) was added in March 2006.


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