Some tips to reduce the cost of company cars

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Five ways to cut the cost of company cars (Source: Business Car Manager)

The hybrid comes of age. New Mercedes E-Class Hybrid is capable of 56mpg and with 109g/km emissions qualifies for 15% company car tax.

Britain's taken on a retro tinge; bunting for the Jubilee, and austerity politics that recall a very different time from the credit-soaked atmosphere in which people operated until recently. It's all very chin up chaps - keep muddling through.

How can business car managers respond to this mood? Where can they save a bob or two? Should they eschew internal combustion altogether, and insist drivers take up the velocipede, the penny farthing, the two-wheeler: in short, the humble bike?
Two wheels good!

So let's start with the extreme. What could be more fitting in these straightened times? Bikes don't need refuelling, maintenance is cheap, and then of course there's the parking. But nobody sees two wheels replacing a petrol- or diesel-fuelled workhorse anytime soon. (Hmm, horses. Might be something in that. A bale of hay is 3 times the price of a litre of petrol these days.)

But don't write the idea off altogether. For those rare fleets where a bike could be a practical replacement for a company car, there are some attractive options available to sweeten the pill.

A salary sacrifice scheme - such as that offered by - can help both employers and employees reduce their tax bills. How do they work? The principle is that an employee gives up - 'sacrifices' - a part of his or her salary in exchange for the loan of a bicycle and safety equipment. This is a 'non-cash' benefit in taxman parlance. Because the sacrifice is taken from gross rather than net pay, the employee ends up paying less tax and NI. A pension contribution isn't a bad analogy.

While a scheme like this isn't going to replace a company car scheme for most businesses, it might well be worth looking as an add-on, complementing rather than replacing the cars and vans people already have.

Not far removed from an all-bike fleet are electric vehicles (EVs). However, while British people understand that EVs have many wonderful features to recommend them, from the SME viewpoint they remain impractical for all but the largest fleets and won't form more than a small percentage of vehicles on the road for quite some time.

Fleet expert Colin Tourick says: "EVs are suitable only for a very small percentage of drivers. Even though most business car drivers do less than 50 miles a day they value the ability to do more should they wish.

The absence of a charging infrastructure is another very obvious barrier to the proliferation of electric vehicles. We can see niche applications – perhaps for small businesses who want to promote a green image – but for most businesses, they remain in the future.

A more practical take on the electric vehicle for the canny business car manager comes the form of hybrids and range extenders.
Hybrids and plug-ins

Hybrids use a petrol or diesel engine alongside an electric motor. The electric motor powers the car at low speeds – typically around town – and the big fellah is there to take over when you hit the high road. The batteries that power the electric motor are then charged ready for the next town centre.

They have been around for some time, so we’ve been able to see how they sell at auction where their performance has given those in charge of business car finance some comfort. They’re definitely the way forward for now,” says Colin Tourick.

Mercedes-Benz is launching a new model that will have SME directors reaching for the cheque book. Mercedes says the E300 BlueTEC Hybrid can manage 56mpg and the 109g/km CO2 emissions make it a smart choice if drivers want to reduce their company car tax bill – the VED in band B is a tempting £20 a year.

Plug-in hybrids add an obvious benefit to the genre – as well as the petrol/diesel engine charging the battery people can plug them in to the mains which greatly extends electric powered scope. Toyota has just launched its new Prius Plug-in model which is capable of over 134mpg on the official cycle! And company car tax? Just 5%.

Range extenders are also akin to hybrids, but take the concept a step further. In cars like the Vauxhall Ampera a small petrol engine does not, beyond extreme loads, put any power into the wheels and is there purely to charge the batteries that power the electric motor. As the Ampera road test says, the concept has some advantages and Government grants worth up to £5,000 go some way to mitigating the whopping price tag. Brave forward-thinking business car managers take note.

Petrol’s big comeback:

Conventional wisdom has long had it that diesel is best for most business car drivers.

But looming Euro 6 emission regs will add considerably to the cost of diesel engines so car makers have raised their game, producing petrol engines that can rival a diesel’s fuel consumption. Ford’s award winning new EcoBoost 1.0-litre three cylinder engine will give all the performance anyone would expect from a four-cylinder engine, “but with much higher fuel economy and lower emissions,” Ford trumpets. The new engine in the Focus could deliver 58.9 mpg and carbon emission of 109 g/km, good for running costs and the tax disc. So good that it was given the Company Car of the Year title this year – beating the diesel version of the Focus.
Wait for the 3% diesel surcharge to disappear

But is there a place yet for the good old diesel?

Well, yes, clearly there is – and don’t forget that, despite the advances in new lightweight petrol engine technology, the 3% surcharge on diesel company cars is ending in April 2015, which will have a big impact on their benefit in kind attractiveness to company car drivers – and reduce the level of National Insurance payments managers will need to make as company director on their fleet of company cars.
Expert commentary from Fleet Alliance on cutting company car costs

“As the article suggests, the role of the business car manager is becoming increasingly complex, with many more variables to ponder than in days of old.

“We share the belief that electric vehicles are not currently (no pun intended) a real option for the vast majority of fleets. Hybrids and range extenders are much more realistic – and should be now form part of any company car policy review.

Martin Brown, MD at Fleet Alliance:

“The clear company car issue, from this article and indeed generally, is that costs can be reduced by reviewing and making some policy tweaks.

“Now’s as good a time as any. We’ve produced a White Paper to help. You can access it from our website by clicking on the link Hybrids and their role in lowering company car tax.” Martin Brown, managing director of fleet solutions provider, Fleet Alliance

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Conrad Swailes