What’s best for a small business: providing a company car or a car allowance? Robert Nugent, from car leasing broker Anthony K Associates, weighs up the issues. As a business director or manager you have the responsibility to ensure your employees are safe in their place of work.
When a car becomes more than commuting transport, the vehicle they drive becomes an extension of that place of work.
The traditional role of a company car is to travel to and from meetings, events and other activities that add value to your business.
Since the arrival of company car tax there have been various tax-efficient ways of providing the transport while reducing the tax on your employees.
Recently, the most popular ‘alternative’ has been the ‘car allowance’: an employee gains a salary increase; in return they provide their own vehicle. They are then reimbursed for the business mileage.
In principle this should work perfectly. But the majority of car allowance schemes in smaller business fleets are incorrectly calculated and often badly managed. Small business owners tell us that employees end up buying unsuitable, unreliable used vehicles in order to pocket more of the cash. At the other end of the scale you have the flash sales manager turning up to appointments in a Porsche 911.
There is also the issue of the new Corporate Manslaughter Act to take into account. Personal cars used for business are often inadequately serviced or insured, which could potentially lead a small firm into serious trouble. Particularly now that management responsibility for all cars used on business rests with the company directors or partners.
Additionally, many firms over-pay their opt-out drivers. If, for example, you are paying the full cost of the vehicle, plus mileage allowances, you are giving your drivers a huge pay rise.
It makes sense to work it out so both parties benefit from any potential savings. This in itself can be a time-consuming and expensive task.
So which is the best way to go?
Both a company car and an opt-out scheme need to be properly managed. Vehicles used for business need to be checked, maintained and in full working order.
Depending on the nature of your business it also pays to have controls in place as to the suitability of vehicles, their environmental impact and the impression they give of your company.
With this in mind, I believe the easiest solution for most small businesses is contract hire. Ideally you have a car for three years, which includes maintenance. Savings are achieved by choosing an environmentally friendly, fuel-efficient car. This will also reduce the carbon footprint of your company and your business car running costs, while the company also maintains control of the car choice, insurance and vehicle safety. The employee pays tax on the vehicle yet has none of the worries of running their own car.
Before making any decisions, speak to experts in the field. They’ll be able to provide advice and support. They will also keep an eye on the issues affecting the larger fleets which will gradually filter down to the smaller business fleets. At present, the industry is preparing for a switch back to company cars, driven by the need to regain control and take advantage of tax bill reduction strategies through correct vehicle selection.
Further information
Anthony K Associates is a BVRLA-approved car leasing broker and can be found at www.anthonyk.co.uk
Following the 2008 Budget, contract hire is likely to become more cost-effective for businesses. Read the story Chancellor gives green light to contract hire.
For more on Corporate Manslaughter and how if affects the running of small business fleets, read:
- Paul Harrop’s Top Tips on How to understand the new Corporate Manslaughter Act
- Dr Will Murray’s Advice Centre article on What is the new Corporate Manslaughter Act?
- Solicitor Sean Joyce’s Advice Centre piece on Using a mobile phone and the Road Safety Act
- Further free advice on How to tackle motoring duty of care is available as a factsheet in our Downloads section
