HR professionals turn to alternative company car models as tax rises bite

HR executives are turning away from the traditional company car scheme, due to constant rises in Benefit-in-Kind (BIK) taxes. 

The tax hikes are making employee benefit packages less attractive and, as a result, HR teams are looking to different car provision models to try and escape the impact, according to Gordon Calder-Jones, director at vehicle finance specialist, Maxxia.

“We traditionally help people in fleet management roles, but are receiving more and more enquiries from HR professionals asking about tax efficient solutions. That’s because BiK tax rises are leaving staff out of pocket and unhappy – with HR taking the flak,”he says.

The rises are significant. For a3-door BMW, a 40% tax payer would have paid £1,309 in 2014/15 as part of atypical company car scheme. But that will be more than double next year, when it goes up again to £2,805.

This is boosting demand for employee car ownership schemes (ECOs), explains Gordon Calder-Jones.

“Our ECO scheme is generating lots of interest, as it reduces employee tax bills,” he says.

“It avoids BiK – and creates major savings – by allowing employees to buy a new car claiming Approved Mileage Allowance Payments (AMAPs) for business use, which are free from tax and national insurance.

“The AMAPs paid go towards the running costs of the new car. ECO schemes work particularly well for people who do a lot of business driving.”

Yet it’s not just tax rises that are causing problems for company car packages. A new testing regime for car makers called WLTP (World Harmonised Light Vehicle Test Procedure) is leading to a shortage of new models – as manufacturers are struggling to get all their cars tested and ready for sale in time.

It is also pushing up tax on many vehicles, as the test typically shows cars to be emitting more CO2 emissions than previously thought.

The result is a shortage of company cars on offer – due to rejected orders, altered specifications and much longer lead-times.

Gordon Calder-Jones says this has caused many companies to look at short-term leasing to plug the gap.

“The supply problems caused by WLTP mean we are dealing with high demand for our mini-lease service. This allows firms to quickly fill the gaps in car availability through new, or nearly new,short-term hire vehicles.

“Mini-lease is popular with employees as they can get to choose the exact car they want, even down to colour. With this arrangement, the driver usually keeps the same car for the whole contract – removing the annoyance of repeated vehicle swaps.”

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Author: Editorial Team

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