Partner at KPMG
Once very much a staple of the executive reward package, the popularity of the company car as a benefit has somewhat changed in the UK. However, with changes to tax rules, are things changing?
Harvey Perkins, partner at KPMG, on green fleets
I remember when I was young my father’s company car was always a Ford Granada and he swears he didn’t even have a say on colour (always beige!). Nowadays, many company car drivers have a wide choice of cars – and they are increasingly aware of the benefits of a lower tax charge resulting from low CO2. If you look at many adverts for cars you’ll see specific mention of CO2 and the impact on company car tax.
An employee who pays tax at 20% would be just over £2,000 better off over 3 years taking the car that emits 99g/km rather than 150 g/km. By picking cars with the lower emissions employees can save money, and the Government achieves its aim of lower CO2 emission cars on the road.
From an employer perspective, the newest trend – and its growing rapidly – is for businesses to reintroduce company cars by inviting employees to sacrifice salary in exchange; i.e. take a pay cut. At KPMG we introduced such a scheme three years ago. It provided all employees with access to a company car where previously this benefit was only offered to managers and above.
Initial take-up was high at 13% and the popularity of the scheme continues to grow, with average CO2 emissions falling from 143g to 119g across the fleet.
There are many different tax and social security implications for those operating and driving company cars and all are impacted to some extent by a car’s published CO2 emissions. This ranges from the tax disc on the windscreen (shortly to disappear in hardcopy) through to tax paid by employee and employer on the provision of the benefit in kind, to the way the employer then gets tax relief on the expense of buying or leasing the car itself.
Nowadays, many company car drivers have a wide choice of cars – and they are increasingly aware of the benefits of a lower tax charge resulting from low CO2.
Cumulatively it is much more expensive to provide an identically priced company car with high CO2. For example; a diesel car with a list price of £31,025 and CO2 emissions of 150g/km costs a company around £2,100 (net) more over 3 years than if it had CO2 emissions of 99g/km.
The future looks bright for green fleets
Company car fleets remain huge customers for car manufacturers and successive governments have grasped the potential to drive those buyers towards cars emitting lower CO2. These policies have arguably been very successful, although the current government has watered down many of the incentives to encourage employees move to the lowest CO2 cars.
The company car scheme doesn’t seem as if it’s going to be going away though – with it becoming an option to more and more employees. If it continues to be tied in with the tax benefits, it looks like the future will be bit greener and environmentally friendly.