Tax issues and the rise of alternatively fuelled vehicles are making selecting a company car increasingly complex, says Nat Barnes.
Choosing a company car used to be easy. You cast your eye over the list sent by your fleet manager, picked one that you liked the look of or had the best badge to impress the neighbours with, and those were your wheels for the next three years.
Then, inevitably, the taxman caught on. Although company car tax was initially only payable by directors and higher-paid employees, it soon became based on the size of the car’s engine and then moved to the emissions-based system in 2002.
Today, choosing a company car is anything but easy; instead, it’s enough to send you reaching for the aspirin. Changing markets and customer demand, Brexit, the VW “dieselgate” scandal, current and future emissions regulations, taxation changes, fuel costs – the list of mitigating factors that need to be taken into account by those drivers wanting a company car, their fleet managers and even the manufacturers themselves, is mind-boggling.
“The fleet car market is suffering massively at the moment, simply due to the huge disconnect between what company car drivers want and what their fleet managers want,” explains company car expert and editor of Company Car Today Paul Barker. “Understandably, many company car drivers want to pay the least amount of benefit-in-kind tax, which is leading them more towards petrol cars, especially since the April 2018 budget [which penalised diesel car drivers even more than before].
“However, fleet managers want to keep their costs down, so they often want diesel cars for their higher-mileage drivers. As a result, there’s a big difference between the two and nobody really knows how to resolve it.”
In turn, sales of new diesel cars so far this year are down by more than 30 per cent on 2017. The market share for petrol cars is now at its highest for many years, but these produce higher levels of carbon dioxide (CO2). As a result, emissions from the average new car sold in the UK rose earlier this year for the first time since 2000 (source: SMMT New Car CO2 Report 2018) – news that was greeted by politicians with all the joy of standing barefoot on a discarded garden rake.
By comparison, while sales of alternatively fuelled vehicles, such as hybrids and electric cars are rising, they still only represent five per cent of the market. Nobody questions that electric cars in all their forms represent our motoring futures; it’s just a question of how fast we get there.
Jaguar has been one of the first premium manufacturers to introduce an all-electric car to showrooms with its new I-Pace. While premium-badged electric cars have been available with models like the BMW i3 and Tesla’s range, they have been a niche choice for many.
The I-Pace has come ahead of both Porsche’s new all-electric Taycan (based on the firm’s Mission E concept) due in 2019 and Audi’s e-tron SUV to be unveiled later this year, and looks to be able to answer many of the traditional electric-car fears. Two electric motors front and rear with a 90kWh battery give the I-Pace four-wheel drive and a fully charged range of 298 miles.
Standard home wall boxes for charging can, Jaguar claims, give the I-Pace 80 per cent of that range in ten hours (ie, the time between you returning from work and leaving again in the morning). When more powerful rapid chargers become available, that will be considerably faster.
There’s no question that the majority of British commutes could be made using battery power, but convincing drivers of that is another matter. There are 16,000-odd charging points in the UK, but the reality is that they’re not as easily accessible or well located as traditional filling stations.
The majority of those charging points have been privately owned and run too, rendering them redundant unless you’ve got an account with that particular company (similar to only being able to use your own bank’s ATM machines up until the late 1980s). Thankfully easier “plug-in-and-pay” type points are now becoming more widely available.
There’s another irony in store for anyone choosing a fully electric company car, too. The government is obviously keen for drivers to adopt this new, cleaner technology, and fully electric vehicles will attract a very tempting benefit-in-kind tax rate of just 2 per cent for the financial year 2020-21. Until then though, for the current year it stands at 13 per cent and then actually rises, rather oddly, for 2019-20, to 16 per cent.
“For those running a fleet of cars, the main criteria is cost of ownership including running costs over those first three years,” explains Toby Poston, the main spokesperson from the British Vehicle Rental and Leasing Association. “But companies also want to be seen to be doing the right thing, which is why diesel remains the best choice for those doing 30-40,000 miles a year.
“However, with the average business fleet journey being around 150-170 miles, once the range of electric cars starts to get closer to that, then they become a more plausible option for company car drivers. Many fleet managers, however, are starting to insist that those choosing an electric vehicle of whatever description have a charging point installed at home.”
Until now that’s been a thorny subject for those running plug-in hybrid models. On paper, plug-in hybrids boast incredibly high average fuel economies (thanks in part to the way that the cars are tested) and therefore boast tax rates lower than an earthworm’s shirt buttons.
In reality though, with a petrol engine alongside their electric motors, there has been no incentive for the drivers of plug-in hybrids to regularly recharge, meaning far higher than expected fuel bills for the company in question. For fleet managers, finding that fine balance between low running costs and low taxation rates, while also keeping employees happy, is only going to get harder. Company cars are viewed by employees as one of the biggest job perks, alongside pensions – and are often rated higher than private healthcare.
The increasing numbers of electric and hybrid models muddy the waters of the traditional choices still further. Choosing a company car is, unfortunately, about to get harder than ever.
A question of tax
Do you charge your mobile phone at work? Would you expect to be taxed on that electricity? That is the problem the government has with how to go about taxing the electricity you use to charge your company car.
In effect, charging an electric car at the office is free fuel, but petrol and diesel are usually taxed. There’s no easy way for HMRC to calculate the benefit of that electricity if a car is charged for free at the office, but if that car driver charges up at home, it’s difficult to measure the cost and claim it back on expenses.
The signs from the Treasury indicate that it’s not yet looking to penalise those driving electric cars, but you don’t need to have Mensa membership to see the subject is a political minefield that there is no easy path through.
One approach might be a wider nationwide system of charging for using the roads, but good luck to the career of any politician suggesting that any time soon.
Grey fleets – cash for cars
If choosing a company car is too hard, then – if you can – why not take the cash alternative instead?
Increasing numbers of employees are doing so, but many forget the convenience of a company car. After all, somebody else pays servicing and running costs, insurance and road tax, and for incidentals such as punctures.
Opt out of the company scheme, though, and your private car, used for company business, is known in the industry as part of the “grey fleet”. The advantage is that you can choose your own model, rather than pick from
a list and maybe even have some money left over.
While this option makes more sense for those who have a car as a perk, as opposed to higher annual mileages, it’s not without problems. For the employee, there are the costs listed above, on top of the burden of having to take responsibility for your own transport.
Employees who opt out are often driving older cars (the average grey fleet car is eight years old), which usually means higher emissions and lower reliability – not great if you’re heading to a meeting to represent your company. Some industry experts worry this may become a health and safety issue in the future, too.
