Craig Davy's blog: The trend away from company cars to PCH via cash allowances - right for all businesses?
07 September 2018
The unabated swell in company cars' contribution to the Treasury through annual BIK rises and the diesel surcharge along with uncertainty over WLTP are fuelling the trend for organisations to encourage employees to take personal contract hire (PCH) deals through cash-for-car allowances.
With the average UK fleet cycle currently 3.9 years according to Arval, transferring a large proportion of the financial responsibility behind vehicle acquisition and mobility to employees initially seems like a mostly positive step - one that will save grappling with the absence of BIK and NIC bands for 2021/22 and second-guessing the government's mixed messages over plug-in and electric vehicles.
It is indeed possible to find PCH deals that work out cheaper in terms of fixed monthly rentals than if a staff member takes a traditional company car and pays BIK tax, a key advantage for employees being that, unlike in a salary sacrifice arrangement, personal lease cars are considered as private and not a benefit. Opting for PCH puts cash-takers behind the wheel of new, technologically-advanced and visually exciting cars every few years or so. In many cases it also opens up more choice across makes and models.
However, if such vehicles are used for any legislatively-deemed 'at work' purposes, they should come under an organisation's 'grey fleet', with managers therefore potentially imposing certain restrictions, such as two-seater convertibles not being acceptable for staff who regularly transport goods or colleagues. Some organisations choose to impose uniformity in the car park, which would be affected if employees choose different models in different colours; and car allowances can sometimes lead to some employees driving more expensive or generally desirable cars than their managers or even directors in some cases, potentially causing disgruntlement.
Meanwhile, some employees still actually prefer to be provided with company cars, put off by the thought of administration, insurance, maintenance and other aspects of personal lease motoring.
HMRC's new Optional Remuneration Arrangements (OpRAs) are a consideration for organisations that have entered into a new or amended cash allowance or salary sacrifice agreement since April 2017, with the need to report BIK on form P11D. Except for cars emitting 75g/km CO2 or less, tax is applied to whichever is the greater out of the BIK value of or the cash sacrificed in lieu of a car. OpRAs could negate the income tax and NIC advantages that can exist where taxable BIK amounts to less than the foregone salary. HMRC has also recently clarified that cars, servicing and insurance are to be treated as separate benefits.
Fleet managers can address the varying challenges by introducing and maintaining business use policies for such grey fleet cars, by ensuring that cars reflect each employee's grade and by providing guidance on the type of insurance required. Maintaining the same levels of occupational road risk management, duty of care and other fleet policies to opt-out drivers who choose PCH doesn't have to prove burdensome for fleet decision-makers, while increasingly presenting tax bill savings for staff. Most contract hire brokers can provide a tool for calculating which mechanism is best.
Craig Davy is a director of Vehicle Consulting