Looming green taxes, rising fuel costs and corporate responsibility legislation are all forcing employers to think more carefully about their fleet commitments, and providers to up their game, says Nic Paton
If fleet managers haven’t done so already, they should circle 1 April 2009 in their diaries with a big fat marker pen. This is because from that date some of the biggest changes to this country’s company car tax regime for a decade will come into effect. These are expected to make a significant impact on how employers go about buying company cars.
On that day, new rules will come into effect, which will subject all business cars to emission-based capital allowances, in a bid to encourage employers to opt for cleaner, lower carbon-emitting vehicles.
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Cars will placed into one of two capital allowance pools, according to their carbon emissions. Those that emit more than 160g/km of CO2 will attract a 10% writing-down allowance, while those that emit 160g/km or below will attract a 20% allowance.
Organisations that purchase cars emitting 160g/km or less, therefore, will be able to offset twice as much of the cost of the cars’ depreciation against corporation tax. And those that opt for cars producing less than 110g/km of CO2 will be able to write off the full cost in the first year until 2013.
John Lewis, director-general of the British Vehicle Rental and Leasing Association (BVRLA), says: “This will make operating cars of more than 160g/km more expensive. There will be a tax incentive for [employers] to have more expensive cars that are in the lower emissions band.”
As with other perks, in fleet management there is often tension between an organisation’s fleet or reward professionals who want a fleet that enhances its corporate, employer and environmental credentials, and its finance director who, in a climate of rising costs and soaring fuel prices, wants to keep the books as balanced as possible.
The new emissions regime will throw another element into this mix. However, some manufacturers are already upping their game when it comes to providing top-spec, low-emission cars meaning it is increasingly possible to keep everyone happy, says Chris Chandler, senior consultant at provider Lex Momentum. “It’s about making sure you can have your cake and eat it. Even if you go down to 120g/km, you no longer have to drive a Noddy car. What we are trying to say is that fuel costs are an issue but by choosing the right vehicle, it is possible to [achieve all these aims],” he says.
Increasing fuel costs are currently a problem for a large number of employers, who are being forced to look for ways to reduce their fuel bills or bring them under control. Some are turning to measures aimed at reducing employees’ business mileage, for example, by replacing face-to-face meetings with alternatives such as videoconferencing.
Other employers have begun to look to alternative fuels such as diesel, liquefied petroleum gas (LPG) and biofuels in a bid to cut costs. Vehicles powered by these types of fuels are generally more environmentally friendly.
Fleet management providers have begun to respond to employers’ increasingly complex needs. Nigel Trotman, fleet manager at Lloyds TSB Autolease, says providers are now able to play an educational as well as a commercial role, guiding employers on the best tax, fuel and environmentally-efficient options.
Safety is another issue at the forefront of fleet managers’ minds, particularly in the wake of the Corporate Manslaughter and Corporate Homicide Act 2007, which came into effect in April this year. Under the legislation, employers are held liable if gross corporate failings in health and safety result in a fatal accident involving one of their drivers.
In response to this issue, employers are looking to fit additional safety features to their fleets, including electronic stability controls (ESCs) that can correct sudden movements such as skids.
“The key is to help drivers and fleet managers responsibly select the best cars. We already have some fleets in which the organisations are saying that in future, all their cars must be fitted with ESC,” says the BVRLA’s Lewis.
Similarly, there is a growing recognition among organisations that they need to ensure that the so-called ‘grey fleets’, or private cars used for business purposes, are safe to drive. “Under corporate manslaughter laws, it is not sufficient to say the employee is responsible. If an [employer] is paying someone to make a business trip, they have to ensure their car is taxed, insured, safe and reliable,” adds Lewis.
This legislation is also having an impact on insurance. Insurers are looking for evidence that employers are taking steps around their duty-of-care obligations, such as providing driver training, before supplying quotations, says Rob Bailey, head of Lombard Vehicle Management. “The message is clear – the better the care, the greater the savings. An effective duty-of-care package is becoming a business imperative.”
Ultimately, employers should ensure they have clear corporate policies in place concerning fleet management. Steve Osborne, head of fleet management at Lloyds TSB Autolease, says: “Your policy should define everything about your choice of vehicle, how it is driven and whether it is for business or private use.”
Police are asking questions
Within such policies, employers should retain an element of control rather than fully outsourcing their fleet management, according to Stewart Whyte, director of fleet operators’ body ACFO.
“You can only manage what is measured, for example, why might 20 of an employer’s Mondeo diesel estate [cars] average 41 miles per gallon (mpg) and the other three just 22 mpg? Are three cars being driven on soft tyres? Why is there more refuelling at the end of each month? Could someone be filling up a partner’s car? When it comes to road accidents, the police are increasingly looking at the purpose of journeys as part of their investigations. And when there is reason to believe corporate discipline is lax, officers are visiting companies’ premises and asking about their policies,” he adds.
When it comes to keeping control of their costs and liabilities, employers should be proactive at fleet, provider and driver levels, and not simply rely on getting the best deal they can.
Focus on facts
What is fleet management?
Fleet management firms can provide services covering all aspects of fleet management including vehicle financing and maintenance, administration, servicing, tracking and diagnostics (also known as telematics) and driver, fuel, and health and safety management.
What are the origins of fleet management?
Although company cars have been around since the 1930s, when cars first started to become available widely to the general public, fleet management as a concept only really started to gain currency in the 1950s and 1960s.
Where can employers get more information?
Industry bodies include the British Vehicle Rental and Leasing Association (www.bvrla.co.uk) on 01494 434747 and fleet operators’ body ACFO (www.acfo.org) on 01730 260162.
What are the costs involved?
The cost of managing a fleet will, inevitably, depend on its size, types of vehicle, mileage, the number of extra services employed and the complexity of funding. Essentially, employers have two choices: to purchase cars outright, using cash or a loan, or acquiring vehicles through a purchase-based or lease-based funding agreement.
What are the legal implications?
Employers have a duty of care to drivers. Under the terms of the Corporate Manslaughter and Corporate Homicide Act, which came into effect last April, employers are held legally responsible if corporate failings in health and safety lead to a fatal accident while staff are on the road.
What are the tax issues?
The benefit-in-kind tax is currently calculated on a percentage of a car’s list price, according to the engine’s CO2 rating. Cash allowance drivers are exempt from the benefit-in-kind charge, but income tax and national insurance are payable. Corporation tax can be offset by depreciation.
Nuts and bolts
What is spent annually with fleet management companies?
According to the BVRLA, the UK fleet rental industry is worth around £11bn a year, and the fleet new car industry around £10bn.
Which fleet management providers have the biggest market share?
According to the BVRLA, the largest provider is Lex Vehicle Leasing, which operates just over 250,000 vehicles. The second biggest player is Lloyds TSB Autolease, with just shy of 130,000, followed by Leaseplan with just under 120,000. Other major players include Lombard Vehicle Management, Masterlease, Arval PHH, GE Capital Fleet Services, Daimler Chrysler Fleet Management, ING Leasing and ALD Automotive.
Which companies have increased their market share most in the past year?
The announcement of the takeover of HBOS by Lloyds TSB last month is expected to result in the two largest players in the market coming under single ownership. The deal, triggered by the crisis in the financial services sector, will bring Halifax’s Lex and Lloyds TSB Autolease together. This will leave Leaseplan, also owned by a bank, ABN Amro, as the second largest player.