If you read nothing else, read this …
• Under grey fleet arrangements, employees use their own cars for business purposes.
• Some organisations that have operated grey fleet arrangements are now returning to company cars.
• Employers should weigh up which is best suited to their organisation.
Case study: Asda shows value of cars
Asda runs a fleet of more than 700 contract hire cars, but allows staff to opt out and take a cash allowance instead. In the past 12 months, cash allowance takers have been returning to company cars, however.
Staff who opt into the car scheme benefit from corporate discounts and a wide range of cars, insurance cover, fully inclusive maintenance, servicing, accident management and breakdown recovery. In all cases, Asda can show cost savings from providing a car through its car scheme relative to the cost of providing a cash allowance.
As well as providing savings to its staff, Asda can reduce the burden of managing cash-takers from a duty-of-care perspective, managing its risk exposure better. In the last year, its funded company car fleet has grown by 150 cars.
Mike Hazelgrave, reward manager, says: “[This includes] utilising a whole-life-cost model to evolve our [car] choice lists and encourage employees to select greener [cars]. This has led to a reduction in our average fleet emissions.”
A growing number of drivers are moving from grey fleet back to company cars, says Sarah Coles
When an employer is calculating the most cost-effective way to manage a company car scheme, there is nothing black and white about it. Over the last 10 years, the answer has often been grey, with employers allowing staff to use their own cars for work purposes and claim back the mileage under a grey fleet arrangement. But now some employers are returning to company cars.
The move towards the grey fleet started in 2001 when a change in benefit-in-kind rules around CO2 emissions made it more desirable for many to drive their own car, rather than a company vehicle. The most prestigious cars had high CO2 bands, and unless staff were prepared to compromise on the size and performance of their car, they were better off buying and driving their own.
But technological advances have changed the landscape. Ian Hughes, commercial director at Zenith, says: “Car manufacturers have, over the last few years, reduced the CO2 emissions from their models. Therefore, company car drivers now have the choice of several fueland tax-efficient cars without having to compromise on performance. For many staff, it is now significantly more cost-effective to enter a company car scheme than source a car elsewhere.”
These developments have also left grey fleets lagging behind in environmental terms. The average grey fleet car may be at least three or four years older than a company car. According to Leasedrive Velo, in the public sector, the average age of a privately owned car used on public-sector business is 6.7 years, compared with an average age of 2.5 years for company cars. A grey-fleet car is therefore likely to have higher CO2 emissions and fuel consumption.
Insurance and maintenance costs
The attractions of a grey fleet have also suffered through increases in the cost of insurance and maintenance. Where employees are responsible for these costs, they have been hit increasingly hard. Older cars are more likely to run into mechanical difficulties and need repair. Add in a 20-30% increase in insurance premiums, and the cost of car ownership has gone through the roof.
Hughes says: “If an employee opts for a company car, they get corporate discounts, inclusive insurance, road tax and a comprehensive, all-inclusive service for accident management, maintenance, servicing, car administration and account management. The costs are fixed for the duration.”
It is not just demand from employees that is driving a move back to company cars. An employer can also reduce risks, which has been moving rapidly up the corporate agenda. Risk awareness was given a major boost by the introduction of the Corporate Manslaughter and Corporate Homicide Act 2007 in April 2008. Although the first prosecution under the Act was unrelated to fleet, employers should remain on their guard.
A number of risks may lurk unseen within a grey fleet. As Hughes points out, an eight-year-old privately owned car may not have the right type of insurance cover, be valid for business use, have a valid MOT or be roadworthy. If that employee was involved in an accident while driving on business, their employer would be legally responsible.
Clive Buhagiar, national public sector manager at ING Car Lease, says: “The employer is required to ensure the employee’s personal car is safe, fit for purpose, insured, taxed and up to date on servicing and MOT.”
These risks can be managed by an employer establishing appropriate and rigorously enforced checks on its fleet and drivers. David Heaton, employee benefits partner at Baker Tilly, says: “Duty-of-care legislation put employers back on the hook for drivers on business in their own cars.”
Buhagiar adds: “The grey fleet can be seen as a way of reducing fleet administration and costs, but this is rarely the case because, under duty of care, all the administrative obligations will remain the same. While some costs will be removed, others will appear in their place. For example, fleet fuel will be replaced with mileage claims.”
This puts a dent in the money-saving argument for a grey fleet, but it does not negate it altogether. In many instances, the employer can do away with the fleet manager, saving a salary and a lot of administration. Paul Jackson, managing director of the Miles Consultancy (TMC), says some employers have found advantages in being able to downsize their fleet quickly. “After redundancies, they are not left with an unwanted fleet or paying off contracts,” he says. “If workforce flexibility is important, a grey fleet is attractive.”
Many organisations will run both types of scheme, allowing employees to choose between a company car or their own vehicle.
Marcus Puddy, head of consultancy services at Lex Autolease, says: “A lot of employers would like to move back to the company car, but they cannot do it overnight. Staff who took cash have made their own arrangements. They may have leased a car or use public transport and spend the money on other things, so a switch to cars would cause difficulties for them.”
There is also a third alternative in car schemes: salary sacrifice arrangements, under which the employee gives up part of their salary in return for a car. The cost of providing the car is covered by a reduction in the employee’s gross basic pay, saving them income tax and national insurance. Benefit-in-kind tax is payable, but schemes are structured so that, for lower-emission cars, the income tax and NI savings outweigh the benefit-in-kind tax.
The future is likely to see more such schemes, but this will be driven largely by the cost of running a car and the tax treatment by the government of the day.
Company cars versus grey fleet
- Technological advances mean powerful company cars are greener, so face less benefit-in-kind tax than a few years ago.
- The employee is not exposed to rising maintenance and insurance costs.
- The employer controls risk.
- Company cars can be offered tax-effectively through salary sacrifice.
- Less administration can cut costs.
- Gives employers more flexibility.
- Gives employees more options on cars or alternative transport.
Read other articles from this month’s Special report on fleet management
Read more on company cars and fleet management