Businesses and employees can save themselves money by offering company cars instead of a cash alternative.The April 2008 introduction of the new 10% benefit-in-kind tax rate on low-emission petrol-engined cars (13% for diesel cars) - sub 120 g/km cars - means that so-called salary sacrifice schemes could be history.
Figures produced by tax experts at KPMG illustrate the cash-saving potential offered by ditching salary sacrifice and encouraging staff into ‘green’ cars. They reveal that, for example, an employee choosing a Toyota Aygo 1.0 VVT-i and taxed at the base rate will pay just £12.25 a month in company car tax and in the process save themselves almost £900 a year.
Matthew Cook, Senior Manager Employment Tax in the Reading office of KPMG, an adviser to Fleet Support Group’s recently-established Cost Reduction Group, said: “That is ridiculously cheap for a company car and it could be a fantastic staff recruitment and retention tool.”
The Aygo five-door costs £7,350 on-the-road, returns 61.4 mpg and has a carbon dioxide emissions figure of 109 g/km.
To fund and insure the car through a typical private lease arrangement it will cost an employee opting for cash instead of a company car £3,068 to cover the monthly rental and insurance, according to KPMG. However, if remaining within the company car scheme, the Aygo will cost the employee £2,187 after giving up their additional cash and paying company car tax - a saving of £881 a year or £73.42 a month.
Meanwhile, employers also benefit. According to KPMG’s calculations the cost to them of the salary sacrifice is £3,335, but the company car could be provided at a cost of £2,957 - a saving of £378 a year.
Mr Cook said: “I believe the introduction of the new 10% benefit-in-kind tax rate for low-emission vehicles will mean demand for company cars will increase.
“The cost savings for both employees and employers are significant if both parties work out the sums and realise how cheap it is to provide a low-emission company car.”
He added: “The trend has been for employers to offer a cash alternative. But, an increasing number of employers are getting very nervous about giving cash because they are losing control over what employees do with the cash and which cars they choose.”
Amid ever-rising concerns over occupational road risk management - employers are responsible for the road safety of staff and other road users irrespective of whether the car being driven is a company vehicle or privately-owned - businesses are also worried about keeping track of safety-related issues in relation to private cars driven on business. These include ensuring business insurance is in place and vehicles are serviced, maintained and repaired in accordance with manufacturer schedules.
KPMG is a member of FSG’s Fleet Cost Reduction Steering Group, which has launched a password-protected interactive cost-saving forum. For further details .