Colin Tourick: Cost efficiency and green credentials among key drivers of change in company car schemes

Tourick2The biggest driver of change has been the tax system. Benefit-in-kind (BIK) tax is based on the car’s carbon dioxide (CO2) emissions and the government cranks up the BIK tax rate every year. This encourages employees to choose cars emitting ever-lower levels of CO2, particularly diesels.

Many employers now wish to do their bit to help the environment, so they impose their own cap on CO2 levels. Normally 120g/km is common, but this number is reducing every year as the number of new low-emission models increases. Most employees seem to accept that these arrangements are a necessary part of the government’s green agenda.

Another trend is that more and more employers now allow employees to ‘trade up’; make a monthly contribution to get the company car they want or need.

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The BIK tax system also encourages many workers to give up a benefit that was once quite common; free, private fuel paid for by their workplace. If someone is still receiving this benefit, they should check if it is actually giving them a benefit, because they may be saving the cost of the fuel but may be paying even more than that in extra pay-as-you-earn (PAYE) and national insurance.

One big change in recent years has been car salary sacrifice schemes. Employers such as these because they represent an attractive benefit of employment and help employers meet their health and safety obligations. Rather than driving business mileage in an old ‘grey fleet’ car, their employees are driving new, properly managed and maintained cars.

Despite these advantages, salary sacrifice won’t replace regular company cars; it tends to be offered to employees who would not have qualified for a company car, because it is most cost-effective for smaller, cheaper cars with low CO2 emissions; cars that are not usually used for lots of business mileage.

Colin Tourick is Grant Thornton professor of automotive management at the University of Buckingham Business School