Can salary sacrifice tackle the large matter of grey fleet?
09 August 2016
Author: Debbie Wood
Grey fleet is something that can often be swept under the carpet - we all know it's a problem, but tackling it can mean a significant increase in administration and investment in technology to get a clearer view of where the problems lie.
However, it's been thrust back into the spotlight recently following a new report from the British Vehicle Rental and Leasing Association, which revealed the full extent of the dependency on grey fleet here in the UK.
According to the report, more than 12.5 billion miles are driven each year by 14 million grey fleet drivers, equating to around £5.7bn in employee expense claims.
Significantly older and more polluting than other fleet vehicles (see 'The stats at a glance', right), there's also the issue of duty of care, with grey fleet drivers falling under the same laws as company car drivers, despite many not being as closely monitored.
Gerry Keaney, BVRLA chief executive, believes the report findings represent an urgent call to action for anyone involved with road transport.
"It's a sector that prides itself on operating the newest, cleanest and safest vehicles on UK roads, but unfortunately, this is not the complete picture. The hidden part, the story that never gets told, is the grey fleet," he states.
Consider the options
As the table highlights, there are a number of options fleets can consider when looking at alternatives to grey fleet, including salary sacrifice, which currently has the lowest average emissions of 103g/km.
The benefits of introducing such a scheme include tax efficiencies as well as employee retention and attraction during the recruitment process. According to David Hosking, CEO at leasing firm and salary sacrifice expert Tusker, the savings for businesses and employees are clear to see.
"Grey fleet does appear to be a taboo subject, but a salary sacrifice scheme is the perfect way to get your employees out of grey fleet," he tells BusinessCar. "Firstly, both the employer and the employee make savings in terms of tax and National Insurance; the employee is able to tap into corporate finance rates and discounts and they also receive a car without having to worry about insurance, maintenance or roadside assistance; and the employer is able to offer a valued benefit to their staff. It's win-win all round."
A big benefit for the employee is that the cost of the car is taken pre-tax - as a result, income tax payments and National Insurance contributions will be reduced, as long as the cost of the car does not mean their salary falls below the minimum wage.
There's also the added duty of care benefits for the companies to consider, as Guy Roberts, director at fleet management SG Fleet, explains: "If that employee is doing business mileage in a salary sacrifice car, the business can have the comfort of knowing that they're driving a new car which is fully maintained and fitted with the latest engine technology. The duty of care box is firmly ticked."
Although some companies like PricewaterhouseCoopers replaced their company car fleet altogether with salary sacrifice, Roberts believes that one size does not fit all and other schemes should run alongside the traditional company car fleet. Mileage is a particular area that fleets should consider when deciding if salary sacrifice works best.
"There are certain instances when an individual will be better in a company car, especially high-mileage drivers. For perk drivers though, where they travel very little for business, it works," he adds.
Roberts goes on to suggest that salary sacrifice is particularly beneficial for cash allowance drivers and should be an option when employees are considering taking the cash instead.
"There is an argument that cash allowance and salary sacrifice should go hand in hand. There are real tax incentives for drivers - instead of paying tax and National Insurance on the additional salary, it will work out more efficient to go down the salary sacrifice route."
One of the drawbacks to salary sacrifice can be the early termination charges imposed if a member of staff leaves. SG Fleet differs from many providers here, though, and instead has the contract with the employee, so if they leave, the firm is not left footing the bill for the car.
"The two main questions we get are: what happens if the employee leaves and whether the company will be left with a load of cars to manage. Both of these barriers we already provide solutions for as the contract of the car is with the employee not the employer, which means there's no risk to the company," says Roberts.
Despite salary sacrifice growing over the past 10 years, Hosking believes there's still reluctance from some fleets to consider the schemes as the benefits are not communicated enough.
"Salary-saving schemes are often viewed as either too complicated or too good to be true, and therefore there must be a hidden catch. It's frustrating as they are a real cost-effective way of reducing the monthly amount a driver spends on a new car, when you take into account insurance and maintenance costs, together with depreciation," he concludes.
Salary sacrifice drivers reclaim business miles on higher reimbursement rates (Approved Mileage Allowance Payments, or AMAP), the same as grey fleet drivers, and according to Keaney, these current rates provide no incentive for cleaner vehicles, something which needs to be addressed by HMRC.
"The Approved Mileage Allowance Payments system used for reimbursing grey fleet drivers is the only part of the motoring tax regime that provides no incentive to drive fewer business miles or use cleaner vehicles. This blind spot is wasting taxpayer money, costing businesses millions of pounds, damaging our environment and making our roads more dangerous," he adds.