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- 30 Sep 2010
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UPDATE -
Car Allowances are on the way out and a Company Car option for ALL employees is on the way in.
As promised to Housey I have made good my pledge to make a few calls to old contacts trying to establish the precise corporate thinking on CC’s versus CA’s today. It took me a bit longer than expected as I had to chase a couple around (making two new contacts on the way as it turns out). Also as a result of what I learnt I have also done a fair bit of googling. I am now confident that I am right up-to-speed.
1. It seems I was indeed a little out-of-date. There are very few organisations now not offering CA’s as well as CC’s. I was wrong about the prevalence of CA’s today.
2. It seems most of the peeps on this thread were also a bit out-of-date because the pendulum is already in full swing in the reverse direction. The desire of most larger corporates is now to get as many employees as possible into Company Cars. I avoid the phrase, “back into company Cars” because it seems that this intent is not merely to get those who currently enjoy CA’s back into company cars but quite literally to get as many employees as possible full stop into Company Cars. That shocked me when it was first put to me but slowly the rationale become clear.
3. The objective of this CA>CC move is to reduce Employers NIC’s and improve VAT recovery. Move back from existing CA to CC’s and at the same time convince other employees too to give up part of their salaries in return for a car and a very significant percentage of Employers NIC’s liabilities evaporate. Hence the motivation not just to get current CA recipients back into CC’s but also as many other staff as possible into CC’s.
4. The mechanism for delivering this transition is known as a Salary Sacrifice Scheme. Some peeps may be familiar with such schemes but they were never once mentioned in this thread so they may be news to some. Equally several peeps suggested that it was in an empolyers interests to move to CA’s. The reverse is true and now being slowly recognised.
5. Salary Sacrifice Schemes must be contractual (i.e. in the form of a newly agreed CoE). Over the last 8 to 24 months all of the major leasing companies, LeasePlan, Tusker, Lex, Alphabet, Zurich P, etc., have been falling over themselves to launch their own Salary Sacrifice offerings and are ramping up active promotion of them.
6. Employees benefit from savings on their personal NIC’s. Although they are still liable for income tax as regards the Car/BIK just as in the current manner for CC’s; using the same tables and variables re vehicle price, emissions, mileage. Effectively by Salary Sacrifice one is purchasing trouble free motoring at discount rates due to the economies of scale (i.e. Fleet discounts, etc).
7. The Employer loses nothing versus current CA arrangements because all the advantages that the move to CA’s provided are maintained. Typically the leasing company that operates the scheme handles almost everything, the supply, management, maintenance, etc., plus the vehicle is still registered direct with the employee just as if they took out a private lease using a CA.
8. The advantages and corporate will for this was demonstrated by the 2010 Employee Benefits Awards/ Business and Perk Car Drivers Category. These awards were judged by HR and Employee Benefits Directors or Specialists from First Group, Ladbrokes, Asda, Quintiles, Skype, Prudential, Cable & Wireless, Centrica and others. CSC, the computing services giant, was awarded Runner-Up in this category. The award citation read; “CSC reviewed its company car policy in 2009. Its main aims were to increase choice for staff, to encourage management take-up of company cars over cash allowances, and incentivise low CO2-emitting cars. The resulting scheme, offered via flex, has reduced operating costs and lowered average CO2 emissions.” (The flex referred to is Lex Autolease Flex.)
9. The premier Audit and Business Consultancy, Deloitte, has set such a scheme up for its own staff and is actively recommending it to their clients. Hardly surprising given the operating cost reductions deriving from NIC reductions and VAT recovery.
10. Leading law firm Freshfields Bruckhaus Deringer has also set up a scheme for its employees.
11. It appears that most organisations will be using an engineered carrot rather than a stick approach to phase out CA’s in respect of those employees who currently receive them. The strategy seems to be to provide employees with an increasingly wide choice of low emission vehicles but also to increasingly enforce that policy. Low emission vehicles enhance of course the organisation’s Eco credentials and therefore that provides a defensible rationale for the trend. These vehicles will be identical to those available through the Salary Sacrifice Scheme but obviously, as a result of Fleet discounts, etc., the cost will be lower to the employee through the SSS than that employee could ever have obtain going it alone. Voila, voluntary conversion to SSS Company Cars as it’s the only sensible move. A typical Staff Attitude Modification Strategy pure and simple. The result – Very significant NIC savings for the Employer and enhanced VAT recovery. Plus SSS’s lose none of the other Employer advantages that resulted from the earlier move to CA’s from traditional CC’s.
12. Lock-in? Those who have read this thread in full will know that I have always held the position that funding a private vehicle lease via a CA restricts employment mobility. I held/hold that employees might be reticent to move to a company providing only a CC after having just taken out and committed themselves to a private three year lease funded by their current CA. So does an SSS funded vehicle have the same potential for lock in?
13. Certainly it would lock-in staff who would normally never receive either a CC or CA were they to move to another company. So for lower grades a degree of lock-in exists and aides the employer in both recruitment and retention.
14. As regards grades that would almost invariably receive a CC or CA wherever they moved, in the vast majority of cases, No, there is no lock-in potential. Most organisations operating SSS’s are also taking out early termination insurance. So if an employee leaves neither the employer nor the employee has to pay the early termination penalties. The employee leaves, hands back the car, end of story, just as with traditional CC’s. However, such is not universal and some companies are not purchasing indemnity, leaving early termination penalties to be paid entirely by the employee.
15. As for the Government/HMRC it seems that the possibility of company cars being opted for by even lower paid workers is anticipated. The only limitations to eligibility are that the remaining gross salary paid to the employee must not be so low as to be below the minimum wage. In other words the minimum wage is considered to pertain to gross salary after provision of a car rather than the notional salary which would include gross salary plus the BIK value of that car.
Boy, oh boy, the last day or two have been a re-education for me. In many ways, contrary to the days of the Company Car drawing to a close it seems likely that we are in reality heading for the Age of the Company Car in potentially far greater numbers than ever before.
For those peeps who are abreast of these trends, I hope you do not feel I am teaching you to suck eggs. In posting this such was not my intent. I post it mainly for those who were/are not abreast of the trend in the hope that it will be of interest or value to them.
The following links may help those with an interest to fill in any gaps. Or for doubters to establish that this is indeed the current trend.
http://www.personneltoday.com/articles/2010/08/16/55769/company-car-tax-and-salary-sacrifice-understanding-the.html
http://www.lexautolease.co.uk/content/products/salarysacrifice.aspx
https://www.tuskerdirect.com/
http://www.fleetnews.co.uk/feature/company-car-salary-sacrifice-providers/38287/
Car Allowances are on the way out and a Company Car option for ALL employees is on the way in.
As promised to Housey I have made good my pledge to make a few calls to old contacts trying to establish the precise corporate thinking on CC’s versus CA’s today. It took me a bit longer than expected as I had to chase a couple around (making two new contacts on the way as it turns out). Also as a result of what I learnt I have also done a fair bit of googling. I am now confident that I am right up-to-speed.
1. It seems I was indeed a little out-of-date. There are very few organisations now not offering CA’s as well as CC’s. I was wrong about the prevalence of CA’s today.
2. It seems most of the peeps on this thread were also a bit out-of-date because the pendulum is already in full swing in the reverse direction. The desire of most larger corporates is now to get as many employees as possible into Company Cars. I avoid the phrase, “back into company Cars” because it seems that this intent is not merely to get those who currently enjoy CA’s back into company cars but quite literally to get as many employees as possible full stop into Company Cars. That shocked me when it was first put to me but slowly the rationale become clear.
3. The objective of this CA>CC move is to reduce Employers NIC’s and improve VAT recovery. Move back from existing CA to CC’s and at the same time convince other employees too to give up part of their salaries in return for a car and a very significant percentage of Employers NIC’s liabilities evaporate. Hence the motivation not just to get current CA recipients back into CC’s but also as many other staff as possible into CC’s.
4. The mechanism for delivering this transition is known as a Salary Sacrifice Scheme. Some peeps may be familiar with such schemes but they were never once mentioned in this thread so they may be news to some. Equally several peeps suggested that it was in an empolyers interests to move to CA’s. The reverse is true and now being slowly recognised.
5. Salary Sacrifice Schemes must be contractual (i.e. in the form of a newly agreed CoE). Over the last 8 to 24 months all of the major leasing companies, LeasePlan, Tusker, Lex, Alphabet, Zurich P, etc., have been falling over themselves to launch their own Salary Sacrifice offerings and are ramping up active promotion of them.
6. Employees benefit from savings on their personal NIC’s. Although they are still liable for income tax as regards the Car/BIK just as in the current manner for CC’s; using the same tables and variables re vehicle price, emissions, mileage. Effectively by Salary Sacrifice one is purchasing trouble free motoring at discount rates due to the economies of scale (i.e. Fleet discounts, etc).
7. The Employer loses nothing versus current CA arrangements because all the advantages that the move to CA’s provided are maintained. Typically the leasing company that operates the scheme handles almost everything, the supply, management, maintenance, etc., plus the vehicle is still registered direct with the employee just as if they took out a private lease using a CA.
8. The advantages and corporate will for this was demonstrated by the 2010 Employee Benefits Awards/ Business and Perk Car Drivers Category. These awards were judged by HR and Employee Benefits Directors or Specialists from First Group, Ladbrokes, Asda, Quintiles, Skype, Prudential, Cable & Wireless, Centrica and others. CSC, the computing services giant, was awarded Runner-Up in this category. The award citation read; “CSC reviewed its company car policy in 2009. Its main aims were to increase choice for staff, to encourage management take-up of company cars over cash allowances, and incentivise low CO2-emitting cars. The resulting scheme, offered via flex, has reduced operating costs and lowered average CO2 emissions.” (The flex referred to is Lex Autolease Flex.)
9. The premier Audit and Business Consultancy, Deloitte, has set such a scheme up for its own staff and is actively recommending it to their clients. Hardly surprising given the operating cost reductions deriving from NIC reductions and VAT recovery.
10. Leading law firm Freshfields Bruckhaus Deringer has also set up a scheme for its employees.
11. It appears that most organisations will be using an engineered carrot rather than a stick approach to phase out CA’s in respect of those employees who currently receive them. The strategy seems to be to provide employees with an increasingly wide choice of low emission vehicles but also to increasingly enforce that policy. Low emission vehicles enhance of course the organisation’s Eco credentials and therefore that provides a defensible rationale for the trend. These vehicles will be identical to those available through the Salary Sacrifice Scheme but obviously, as a result of Fleet discounts, etc., the cost will be lower to the employee through the SSS than that employee could ever have obtain going it alone. Voila, voluntary conversion to SSS Company Cars as it’s the only sensible move. A typical Staff Attitude Modification Strategy pure and simple. The result – Very significant NIC savings for the Employer and enhanced VAT recovery. Plus SSS’s lose none of the other Employer advantages that resulted from the earlier move to CA’s from traditional CC’s.
12. Lock-in? Those who have read this thread in full will know that I have always held the position that funding a private vehicle lease via a CA restricts employment mobility. I held/hold that employees might be reticent to move to a company providing only a CC after having just taken out and committed themselves to a private three year lease funded by their current CA. So does an SSS funded vehicle have the same potential for lock in?
13. Certainly it would lock-in staff who would normally never receive either a CC or CA were they to move to another company. So for lower grades a degree of lock-in exists and aides the employer in both recruitment and retention.
14. As regards grades that would almost invariably receive a CC or CA wherever they moved, in the vast majority of cases, No, there is no lock-in potential. Most organisations operating SSS’s are also taking out early termination insurance. So if an employee leaves neither the employer nor the employee has to pay the early termination penalties. The employee leaves, hands back the car, end of story, just as with traditional CC’s. However, such is not universal and some companies are not purchasing indemnity, leaving early termination penalties to be paid entirely by the employee.
15. As for the Government/HMRC it seems that the possibility of company cars being opted for by even lower paid workers is anticipated. The only limitations to eligibility are that the remaining gross salary paid to the employee must not be so low as to be below the minimum wage. In other words the minimum wage is considered to pertain to gross salary after provision of a car rather than the notional salary which would include gross salary plus the BIK value of that car.
Boy, oh boy, the last day or two have been a re-education for me. In many ways, contrary to the days of the Company Car drawing to a close it seems likely that we are in reality heading for the Age of the Company Car in potentially far greater numbers than ever before.
For those peeps who are abreast of these trends, I hope you do not feel I am teaching you to suck eggs. In posting this such was not my intent. I post it mainly for those who were/are not abreast of the trend in the hope that it will be of interest or value to them.
The following links may help those with an interest to fill in any gaps. Or for doubters to establish that this is indeed the current trend.
http://www.personneltoday.com/articles/2010/08/16/55769/company-car-tax-and-salary-sacrifice-understanding-the.html
http://www.lexautolease.co.uk/content/products/salarysacrifice.aspx
https://www.tuskerdirect.com/
http://www.fleetnews.co.uk/feature/company-car-salary-sacrifice-providers/38287/
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