A Future-Proof Car Scheme with Improved Vehicle Choice

A Future-Proof Car Scheme with Improved Vehicle Choice

Case Study - 2,500+ Company Car Entitled Fleet

Let's set the scene

We’ve recently implemented a new employee car benefit scheme for one of the UK’s leading construction groups, which employs 4,000 people across the UK and provides more than 2,500 employees with a company car benefit. The customer initially approached us to ask for a review of its existing company car solution and our recommendations for potential improvements.

Our analysis outlined a potential £1.24m savings pot for the customer and £2.22m total gross benefit for employees could be achieved if all our recommendations were followed. Keep reading to find out how.

Expanding vehicle choice

The existing company car solution offered a Battery Electric Vehicle (BEV), a Plug-in Hybrid Electric Vehicle (PHEV) or employees could have a car allowance to source and maintain their own vehicle privately. The customer wanted to continue to offer low emission vehicles but be able to provide a wider and more varied choice, including petrol and self-charging hybrids for those who aren’t ready to go full electric just yet. The customer also wanted to enhance the purchasing power for its car benefit solutions by offering employees a higher spec car at a more cost-efficient price and improve customer service.

Overall, the customer wanted to provide a market leading employee benefit and any new solution needed to be flexible, agile, suitable for all employees and sustainable to the environment.

Analysing the data and what we discovered

We reviewed and analysed the existing fleet data, which highlighted a number of key factors.

There was no consistency between the financial cost to provide an employee with a company car versus an employee who took a car allowance - meaning the benefit might not be the same to every employee in the same job role who choose to enjoy their benefit differently.
When employees opted for a more or less expensive car than they were entitled to, there was no clear link between the cost differentiation to the business and the amount of the employee contribution or rebate.
The customer was missing out on tax efficiencies for providing a car allowance.
General feedback from employees was that they found the existing structure limiting and experienced unsatisfactory customer service levels.

New and improved company car benefit

We recommended changes to the fleet structure which increased financial efficiencies, expanded vehicle choice, and ensured a consistent benefit across the job grade spectrum. The customer had job grades in place already in which similar job roles were banded together, each grade received an allowance and was set contract term to standardise the benefit and deliver it in the most tax efficient manner.

By implementing these efficiencies, we created a pool of savings, which the customer can distribute how it sees fit – the savings can be retained by the customer or split in any proportion between the business and its employees.

For the new car scheme, we worked with the customer to ensure the cost of the benefit to the business was fixed before the employees decided how they want to enjoy their benefit, so that no matter their choice, the business costs wouldn’t be impacted. Employees receive a set allowance and can select from one of three scheme options:

Salary Sacrifice Cars

Provides the customers’ employees with an allowance and can spend as much or as little as they choose on a car of their choice (primarily EVs) via a tax efficient salary sacrifice structure

Car Allowance

Provides the customers’ employees with the freedom to make their own arrangements, spending their allowance on a car that they source and maintain, but it must meet the criteria set out in the customer’s fleet policy.

Employee Car Ownership Scheme (ECOS)

Allows the customers’ employees who may traditionally have had a car allowance to capitalise on the business' fleet discounts and get a car cheaper than a PCH/Lease - whilst removing them from the business' grey fleet.

Let’s take a look at the car benefits in more detail

Salary Sacrifice Cars

With the introduction of a salary sacrifice arrangement, employees are provided with a fixed allowance and then sacrifice some of their gross pay in return for the car, rather than make a net pay contribution as they did previously, if they traded-up.

The implementation of this structure not only provided employees with a more tax efficient way to trade-up their vehicle benefit but can also create Class 1 National Insurance Contribution (NIC) savings for the customer. Any savings can then be distributed by the customer to meet the business goals – they can be retained by the customer or used to improve the employee benefit.

If an employee decides to trade-up and choose a more expensive vehicle, under this structure they can make more savings in comparison to their previous company car arrangement - as now they pay around 58%* of the increased vehicle costs, whereas under the old scheme it was 100% of the cost. Regardless of any trade-up, the cost to the customer remains static, as it’s separate to the lease costs and is based on the grade allowance.

As salary sacrifice is currently cost efficient for low emission cars - those emitting CO2 of 75g/km or less) - this option ticked the sustainability box for our customer.

*40% tax payers could pay more or less.

Cash Car Allowance

Under the new structure, the customer pays each employee a cash amount each month into their net pay. The employees then use this allowance to source and maintain their own car.

As the car is owned by the employee, if they drive business miles, they can claim tax-free Approved Mileage Allowance Payments (AMAP). After they’ve been paid fuel expenses, the remaining part of the AMAP is paid into CBL, to reduce the balance.

The new tax efficient structure also means the cost of delivering the allowance is reduced in comparison to normal payroll costs.

We calculated that the value of the tax relief received by the employee was less than the tax efficiency which could be realised if the AMAP was paid directly to the employee in lieu of a taxable cash allowance. The net cash amount was also re-benchmarked so it’s higher than the previous net allowance -so under the new scheme, most cash takers are better off.

Employee Car Ownership Schemes (ECOS)

ECOS provides the customer with a solution that effectively bridges the gap between the old company car and cash allowance options. While ECOS operationally mirrors a company car, the vehicle is owned by the employee from the outset, meaning Benefit-in-Kind (BiK) tax doesn’t apply.

ECOS typically works best for petrol and self-charging hybrids, so employees who aren't ready for full electric or simply have a preference can still have a tax efficient benefit with a traditional fuel vehicle.

Our customer allocates the set allowance towards the cost of the chosen vehicle, and then any trade-up or trade-down is paid or received by the employee.

Rolling out the benefit to non-entitled employees

Our recommendations expanded beyond the company car entitled population, as the new car benefit scheme can also work for non-entitled employees, so they too can benefit from the tax efficiencies of Salary Sacrifice Cars with no cost or risk to the business.

The outcome

£ 0 m

savings pot for the customer, which can be distributed as required.

£ 0 m

total gross benefit provided to employees.

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