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For many firms, a company car (or van) scheme is not just advantageous, but necessary, especially in organisations where a means of transport is necessary for the employees to do their job such as a building or repair work, or sales/client meetings.

A company car scheme is run for varying reasons, but mostly because there are a number of employees who need to use a vehicle to carry out their business.

However, many companies also offer a company car scheme to employees who do not necessarily require a car for work, but it’s part of a benefits package – a perk, rather than something that has some direct business use.

If carefully planned and effectively managed, a company car scheme can help cut your employer national insurance contributions (NICs) and allow you to claim capital allowances that reduce taxable profits, as well as boosting morale among your existing workers and enhancing your strategy for recruiting new employees.

Many benefits may be attractive for both the employee and the employer. It is a controllable reward scheme that does not increase the wage and pension bill and there are no NI implications for employees.

Advertising or branding can be added to the vehicle’s panels to spread brand awareness while having vehicles with low CO2 emissions can reduce the carbon footprint of an organisation.

A company car is very convenient for employees as it alleviates concerns about servicing and replacement while it is now recognised as an essential part of the benefits package when it comes to recruiting new staff

On the other side of the coin, the employer is now responsible for a fleet of vehicles, which costs time and money to manage.

This includes registration and insurance while, depending on the type of scheme used, employees will need to pay company car tax

An employee can also just walk away from the benefit with no penalty

All vehicles must be fit for purpose and the cost of buying multiple cars for a large workforce can quickly add up

That said, a company car scheme is easy to set up and can benefit both the employers and the employees.

So you need to know what cars are most suitable, how are you going to fund it, who will use the vehicles, what restrictions are placed on use, any tax implications and how many you need.

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Some 80% of businesses go for contract hire allowing a company to budget accurately while it also removes the hassle of finding, looking after, and disposing of vehicles.

All that is required is the selection of vehicles, the lease term and annual mileage – an important part of the process as penalties will be charged if the mileage is exceeded.

Contract hire also delivers a set of accounting and tax advantages. The full cost of finance rentals can be deducted from taxable profits if the vehicle emits 130g/km of CO2 or less; or 85% of the rental on vehicles with higher emissions

VAT can be recovered at a rate of 50% on the finance rental if there is private use of the vehicle, or 100% where the vehicle is used only for business.

If maintenance is included, then 100% of VAT on this element of the rental can be recovered.

If looking to free up capital, then Contract Purchase may be a better option. Similar to Contract Hire, this provides the benefits of reduced administration and fixed rental payments, as well as releasing capital for investment elsewhere.

With Contract Purchase, the vehicle appears on the balance sheet, allowing you to claim capital allowances, but the finance element of the rental payments is not subject to VAT.

With Contract Purchase the business put down a deposit on a new car before paying fixed monthly instalments with the option of purchasing the car outright when the contract expires.

At the end of the contract, the business can pay a predetermined ‘balloon’ payment to complete the purchase of the vehicle or choose to return the vehicle back to us. The vehicle must be in good condition, otherwise further charges may apply.

For greater transparency and flexibility, then the Finance Lease is available – the finance company buys the car and leases it to a business at a fixed monthly rate.

The monthly fee is calculated taking into account the leasing term, mileage and the residual value of the vehicles. Unlike a contract purchase, the business will never assume ownership of the car.

The vehicle’s anticipated resale value is fixed at the beginning of the lease. However, at the end of the lease, if the resale value is lower than agreed, your company pays the difference.

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Finance Lease allows you to show the vehicle on your balance sheet, with the outstanding rentals represented as a liability.


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Chris Wright
Chris Wright has been covering the automotive industry nationally and internationally for 30 years. Following spells with consumer titles he became News Editor of Automotive Management (AM), Editor of Automotive International, International Editor for Detroit-based Automotive News, and Editor of Dealer Update. He has also co-authored several FT Management Reports and contributes regularly to Justauto.com

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