Company Car and Van Tax 2017-18 is published

 

The 7th annual edition of Company Car and Van Tax has just been published by Eyelevel Books, in conjunction with KPMG, Ogilvie Fleet, Low Cost Vans and Fleet Operations.

To quote Fleet World:

Updated tax book sheds light on salary sacrifice changes

The new rules for salary sacrifice and cash allowances come under the spotlight in the seventh edition of Colin Tourick’s annual tax book for fleet managers.

The latest edition of the tax guide includes coverage of the new rules announced in the draft Finance Bill.

Company Car and Van Tax 2017-18 is fully updated after the March 2017 Budget, including the optional remuneration, salary sacrifice and car allowances announced in the draft Finance Bill. The book also covers everything a fleet manager or company vehicle driver needs to know about tax, including car benefit tax, fuel benefit tax, VAT, income tax, corporation tax, capital allowances, fuel duty, vehicle excise duty and national insurance contributions.

The book is published in conjunction with KPMG, Fleet Operations, Low Cost Vans and Ogilvie Fleet, and is available from amazon.co.uk, tourick.com and all good bookshops., priced at £40 paperback or £33.33+VAT PDF ebook.

Great press review of Company Car and Van Tax 2016-17 in Business Car Manager magazine

BCM logo

THE definitive book on company car and van tax has just been updated by that supremo of the spreadsheet, calculator and keyboard – Colin Tourick.

Called Company Car and Van Tax 2016-17, this is the sixth edition written by company car tax expert Colin Tourick, and takes into account the tax changes from April 2016. So if you manage company cars for your SME small fleet or are a company car driver, then this book will answer all your questions.

“Unfortunately there are no votes to be lost in taxing company cars, so successive governments have relentlessly cranked up the tax on business car drivers and their employers. This books explains the rules and will hopefully help you to minimise the this aspect of your tax liability.”

In Company Car and Van Tax 2016-17  Colin covers:

  • car benefit tax
  • fuel benefit tax
  • VAT
  • income tax
  • corporation tax
  • capital allowances
  • fuel duty
  • vehicle excise duty and
  • national insurance contributions

See what I mean?

Regular readers of Business Car Manager will already know that Colin is our de facto company car tax expert, providing much needed advice on a range of subjects, as well as serving as a judge on our SME Company Car of the Year Awards.

The book will be available from Amazon.co.uk and any good bookshop from 26 May and can be ordered now from www.tourick.com.  The cost is £40, published by Eyelevel Books.

Company Car and Van Tax 2016-17 by Colin Tourick is published in association with Ogilvie Fleet, Toomey Leasing Group and Grant Thornton.

[Original article is here]

An economic briefing for fleet managers

In this article we will be looking at some macroeconomic indicators and the reasons they should be of interest to fleet managers.

I am grateful to Dr. Eleftherios Filippiadis of University of Buckingham Business School, whose recent lecture inspired me to write this article and who provided much of the background data.

There are many macroeconomic indicators affecting UK business. The main ones we will discuss are:

  • GDP growth
  • Interest rates
  • Consumer confidence and
  • The budget deficits

There is a strong correlation between GDP growth and UK car registrations. When GDP is increasing businesses are confident to take on more staff and business vehicles, and consumers feel secure enough to buy new cars. The government is forecasting a GDP growth rate of 2% p.a. from 2016 to 2020 (source: Office for Budget Responsibility), which is lower than the 2.9% in 2014 and 2.2% in 2015.

When productivity declines (strikes, failure by businesses to invest in new technology) this reduces the willingness of businesses to invest, and if real wages do not grow (inflation rises faster than incomes or there is an increase in zero hours’ contracts) this reduces disposable income in the hands of consumers. Either will threaten the projected GDP growth rate, making it less likely that employers will increase headcount or add to their vehicle fleets.

A possible Brexit would also threaten the GDP growth rate, as so little is known about what might happen if the UK voted to leave the EU. Markets hate uncertainty and if the electorate votes to Leave the economy might stand still whilst employers wait to find out what’s going to happen next. We would be in uncharted waters.

The official Bank Rate has remained at 0.5% for seven years, significantly reducing costs for UK businesses. There is no expectation of a rise in interest rates this year, though when it does come it will hit companies’ bottom lines and dampen demand in the economy (though savers will rejoice).

Consumer confidence is a key determinant of the state of the economy. If consumers are confident they will go out and spend, keeping the economy buoyant. The Consumer Confidence Index is currently high though it has fallen slightly since the peak in 2014.

The UK government has announced its intention to deliver a surplus on public sector net borrowing by the end of 2019-20 and in each subsequent year. If it fails to balance the books it will need to raise taxes (income tax, corporate tax, indirect tax or all three) which could slow down GDP. This is because higher taxes on companies discourage investment in, and by, businesses, and higher personal taxes reduce consumers’ disposable income.

So, as a fleet manager, what might these macroeconomic indicators mean to you? How might you respond if one of these numbers rose or fell?

Every company is different. Whilst most do well when GDP rises, others fare better when it falls.  Some businesses will do well from Brexit whilst others won’t. There are no rules that work for every company, so from this point on we’ll generalise.

If you see an increase in GDP growth and consumer confidence, things are looking up for the economy. You might expect business to grow. Your company may well expand. More cars, more responsibility, more issues to control. Could this be the time to outsource your fleet management or to invest in some fleet software to help streamline your fleet administration?

If the economy is growing there will be more competition for new recruits. Is it time to review your fleet policy to ensure the cars on offer will be attractive to job applicants?

Conversely, when GDP growth or consumer confidence fall, you may find your company is less willing to invest. This might be the time to think about getting more from your existing assets. Do you need as many company cars? Would you save money if you took on a few pool cars rather than allowing your employees to use their private cars for business mileage? How can you get more out of your fleet budget? Is it time to take more control over mileage claims, perhaps by introducing mileage claim auditing or telematics? Telematics might also reduce your insurance claims and help keep down your premiums.

If productivity in your business were to fall, you may find your fleet budget being cut. You may have to deliver the same amount of corporate mobility and the same number of cars for less. Could this be time to ask your leasing company to come up with a fleet list of attractive cars that staff will like and that will do the job but which will cost less to run? Here we are talking about fuel cost and Class 1A NIC as well as maintenance costs and the monthly lease rental.

At some stage, interest rates are going to rise. If the market expects the Bank Rate to rise, actual market rates may creep up more quickly than the Bank Rate. This will be reflected in the cost of three and four year leases, because leasing companies’ own borrowing costs will rise. It is worthwhile monitoring Bank Rate and leasing company cost of funds (they will generally tell you if you ask).

If you currently fund your cars from working capital, bank overdraft or variable rate finance deals (such as variable rate lease purchase, finance lease or HP) at some stage you will need to decide whether to move to a fixed interest rate funding method (fixed rate HP, fixed rate finance lease or contract hire) to lock in low interest rates for 3-4 years before prices rise.

Keep an eye on the budget deficit. If it doesn’t fall as fast as the government wants they may be tempted to increase taxes. There are no votes in company car tax and taxes on business vehicles. It seems that the best way to protect your business would be to keep on driving down the average CO2 emissions of your fleet. Low CO2 cars tend to be smaller and more efficient, and they cost less to buy, maintain and run than higher-CO2 cars. Zero CO2 cars are still relatively expensive to buy, though for some drivers the fuel cost saving makes the extra cost worthwhile. In any event by moving to lower-CO2 or zero-CO2 cars you’re likely to be protecting yourself and your employees from sudden increases in car-related taxes.

Fleet managers and economics. Four words you don’t often hear mentioned in the same sentence. But economics provides the background for all business decisions and can therefore drive fleet decisions too.

Professor Colin Tourick

University of Buckingham Business School

 

Leave salary sacrifice alone, George

temp coverDear George Osborne,

I understand that Treasury officials are embarking on a review of the future of business car taxation, no doubt in part because the new lease accounting rules will in due course place operating leases (contract hire) on lessees’ balance sheets. Presumably at some stage a file will be popped onto your desk proposing changes to the current arrangements.

This note represent no more than the thoughts of one humble citizen that you might like to consider before signing off any changes.

Every student of accountancy is taught about the “Canons of Taxation”, which were first espoused by Adam Smith in his book An Inquiry Into The Nature And Causes Of The Wealth Of Nations, one of the fundamental treatises on capitalism. Smith said that to in order to be good, a system of taxation should meet four tests, or canons. It should be fair, certain, convenient for the taxpayer and economical to connect.

Adam Smith would no doubt have had quite a lot to say about the way tax is currently charged on business cars. In some regards the current systems stretches fairness and certainty to the limit, so perhaps now would be a good time to put things right.

Fuel benefit tax is inherently unfair. 200,000 company car drivers pay this tax via PAYE. It is meant to tax the employee on the benefit they have received because their employer has paid for their private mileage. The problem is that it is payable in full even if the employer pays the cost of only one private mile in a year. In many – perhaps most – cases, the tax these employees pay exceeds the benefit of the free fuel that they are receiving. Please take the opportunity to fix this. At the very least, HMRC could provide guidance to employees to help them calculate whether they are actually receiving any net benefit. And prompting employers to review this area might also be helpful.

Company car benefit in kind (BIK) tax is designed to charge the employee for the benefit of having a car that is available to use for private mileage. This is a piece of cop-out language that governments have used for years to make life easier for themselves at the expense of the employee. For in truth an employee doesn’t benefit from having a car sitting on their drive at night, they benefit when they actually drive the car. However BIK tax charges the employee the same amount whether they drive 1 or 10,000 private miles per annum. Can this be fair?

There appears to be a disconnect between the government’s desire to encourage employees to take up low CO2 cars and the steep rise in the BIK tax that will be payable on these cars over the next few years. The driver of a car emitting 1-75 g/km of CO2 was taxed on 5% of the car’s list price last year and in four years’ time this will nearly quadruple to 19%. Is this rapid increase consistent with your government’s environmental credentials, and is it actually fair?

The U.K. is currently breaching EU air-pollution limits as set out in the 2008 Air Quality Directive, and the government is facing potentially huge fines from the EU. This is a very serious matter. It has been estimated that poor air quality causes 29,000 premature deaths each year in the UK. London has one of the highest levels of nitrogen dioxide and NOx emissions of any major European city, well over the approved limits. If you are going to change the tax system for business cars, you now have a golden opportunity to base it on one than one emission, including carbon dioxide, nitrogen oxides and particulates. The whole system – capital allowances, lease rental disallowance, benefit in kind tax, national insurance and VAT – should  reflect this. And leasing companies should be given first year allowances to boost the take up of zero emission cars.

One thing that was definitely unfair – and breached the canon of certainty – was the reintroduction of the 3% diesel surcharge. Company car drivers have been told for some years that this surcharge would be dropped and they would have chosen their cars armed with this knowledge. They cannot now do anything about this but just have to pay the extra tax until their three or four year lease expires. They have therefore been trapped into paying this extra tax which in most cases will have increased their BIK tax payable by more than 10%. Drivers choosing new diesel cars now can make an informed decision in the knowledge that the diesel surcharge has been reinstated, but drivers already driving diesel cars – i.e. most company car drivers – cannot do so. Therefore the rapid re-introduction of this surcharge was certainly unfair.

When you make your decision about altering the current regime, please bear in mind how important it is that the new system should keep people in company cars rather than encouraging the use of privately owned (“grey fleet”) cars for company business. Otherwise we will have a health and safety nightmare, companies will have an additional administrative burden and there will be a rush to introduce Employee Car Ownership Schemes (which always add a significant administrative burden).

Should you decide to change the tax rules as a result of the lease accounting changes, leasing companies will almost definitely have to invoke the “tax variation” clauses in their lease agreements, adjusting the rentals they charge in order to retain their after-tax margins. Most UK lease agreements contain these clauses. It would be really helpful if you would grandfather the tax treatment of any existing business cars and allow these cars to be taxed under the old rules until their leases expire. Please don’t ask the leasing industry to recalculate the rentals on 1.3 million company cars. This will add a significant burden to them and also cause hassle with clients, many of whom will not understand the tax-based discounted cash flow analysis the leasing company has had to use in order to recalculate the rentals.

You said in the Autumn Statement that you plan to look at salary sacrifice for cars. When you do so, please take a holistic approach and look at the totality of the system rather than just the income tax and NI calculation for an individual employee, because there is some evidence that salary sacrifice is a net generator of income for the Exchequer. If you were to adopt a holistic approach I think you would discover that most salary sacrifice cars are acquired for use by employees who would not otherwise be entitled to a company car and who have never bought a new car before. This transaction therefore generates a new car purchase that would not otherwise have taken place. The Exchequer benefits in a whole variety of ways from this transaction. The car manufacturer (or importer) and dealer pay corporation tax on the profit they make on the sale; VAT is collected on the sale; BIK tax is payable by the employee throughout the period they have they use of the car and NI is payable by both the employer and the employee. Salary sacrifice also brings a new car into the UK car parc, one that will almost definitely be greener than the one it replaces. In addition, there are significant benefits for the employer. They know that when an employee drives their salary sacrifice car for business mileage they are doing so in a modern, reliable, low CO2, low NOx car rather than an older, less reliable, high CO2, high NOx car. There is much more to salary sacrifice than meets the eye.

And one final request. Please have a look again at the system for capital allowances on business cars. It is currently quite possible that if a company were to buy a business car for a 25-year-old employee today and sell it after three years they will still have not received tax relief (capital allowances) on the full depreciation of that car 42 years later when that employee retires aged 67. This is bizarre, unjustifiable and therefore unfair. You could resolve it by the stroke of a pen by allowing companies to claim balancing allowances when cars are sold. And if you fancy boosting investment and economic activity you might also like to look at increasing the current levels of writing down allowance, which at 8% and 18% encourage nothing at all.

Your humble citizen

Colin Tourick

Professor Colin Tourick is the Grant Thornton Professor at the University of Buckingham Business School.

 

How good is your relationship with your contract hire company?

temp coverThe relationship between contract hire companies and their customers varies enormously. In fact someone should write a book about this topic one day. At the one extreme you have fleet managers who say “we’ve been doing business with them for years, they give us the service we need and we never give the relationship a minute’s thought”. At the other extreme you have the fleet managers who say ” they charge us a fortune, hefty unexpected  invoices arrive for all sorts of things we hadn’t budgeted for and we are wary of them”.

Most client/supplier relationships lay somewhere between these two extremes of course, but if you are a fleet manager and you recognise some elements of your own situation in the second situation described above – “we are wary of them” – this article is for you.

The core proposition of every contract hire company is that they will deliver a vehicle, let you run it for some years, renew the road tax annually, pay for tyres and service, maintenance and repair (“SMR”) costs and collect the vehicle at the end of the contract.

Delivering this ever-so-simple product (one supplier used to advertise “We look after everything – all you have to do is put in fuel and drive it”) is anything but simple for the contract hire company. You may see very little activity from them – it may seem that they just they deliver you cars, send in a monthly invoice and pay the bills. However, rather like a swan, whilst it all looks serene up top they are padding away furiously just below the surface.

They have to manage a cat’s cradle of relationships with manufacturers, dealers, roadside assistance companies, banks, data providers, technology companies, remarketing companies, daily hire companies, accident management companies, fuel card companies, the DVLA and others, to ensure that you get the service you need.

Where tension exists between leasing companies and their clients, as often as not it’s because the leasing company hasn’t explained adequately why it does some of the things it does.

It can be annoying when they ask you for financial information about your company. “Why do they need that? They can always repossess the cars if we don’t pay.” Well yes, they can, but they don’t want to and their pricing certainly doesn’t allow for that sort of cost.

It can be frustrating when one of your employees leaves, you ask how much it would cost to terminate their car lease and you’re told it will be thousands of pounds.

And – perhaps top of all fleet managers’ lists of gripes – it can be perplexing when a bill arrives for vehicle damage you didn’t know about and the driver insists the damage wasn’t really that bad at all.

Let’s look at the detail behind those last two items – early termination charges and end-of-life damage charges – because they probably generate more heat between leasing companies and their clients than anything else.

First, early termination.

There is one key difference between leasing companies and daily hire companies. When you order a hire car for a few days or weeks you probably aren’t that bothered what make or model of car turns up. So long as the car is in the right hire group – small, mid-size, estate, 4×4 etc – you’ll probably be happy.

However when you order the company car you’ll  be driving for the next three or four years you will be very fussy indeed about which car arrives, and so is every other company car driver. So the leasing company will have gone out and ordered that car specifically for you and by and large they will be unable to redeploy it once you hand it back. They’ll have to sell it, which causes a problem because the price they receive will depend on the age and mileage of the car when you hand it back, and the state of the used car market at that date.

You might decide that you want to know at the outset how much it would cost you to early terminate the car. Alternatively, you might prefer that they just sell the car and charge you the amount necessary to clear their books. Almost all leasing companies will allow you this choice, and will build it into your agreement. Incidentally, that’s something you really must do if you want to avoid shocks later: build the early termination method into your lease agreement.

If you want complete certainty as to the amount you will have to pay to terminate your lease early, your leasing company will probably offer you one of four methods: percentage of future rentals, a fixed number of rentals, the rule of 78 or the annuity method.

Percentage of future rentals [or the fixed number of future] are self-explanatory. “If you terminate in the first 12 months we will charge you X% of all future rentals [or 12 rentals], if you terminate in the second 12 months we will charge you Y% of all future rentals [or 6 rentals], etc.

We have covered the rule of 78 and annuity methods in these articles in the past so won’t go into detail here now. Suffice to say that these are ways to determine the balance outstanding on a financing agreement at any point in the life of the contract. If you know how a repayment mortgage works you’ll be familiar with this approach: each month’s payment is allocated mainly to pay off interest in the early part of the contract and mainly pay off capital later on. (If you would like us to explain this in more detail in next month’s article, please let us know).

The alternative approach is the actual cost method, whereby the lessor will charge you the balance outstanding in their books less the net price they receive on selling the car.

Any of these approaches might be more or less expensive than the other, for a particular car on a particular day. You just need to choose which method you prefer and this should help avoid any shocks. If you don’t like uncertainty, go for the actual cost method.

The other tricky area in relationships between customers and suppliers is end-of-life damage charges. Most UK contract hire companies belong to the British Vehicle Rental and Leasing Association and they have to comply with the BVRLA’s excellent Fair Wear and Tear Guide which defines the line between fair wear and unfair damage. If you haven’t seen the Fair Wear and Tear Guide, ask your leasing company for copies and make sure your drivers are familiar with the contents.

The best way to ensure your leasing company doesn’t charge for damage is to make sure the car is in an acceptable condition at the end of the lease. This means ensuring that your drivers keep their cars in reasonable condition, report damage as soon as it occurs and get it repaired. Make sure the work is done professionally, otherwise the leasing company may still charge for the damage.

Most leasing companies don’t send damaged end-of-contract cars for repair. They sell them at auction to dealers who can get cars repaired for roughly the same price as the leasing company would pay. The leasing company will charge you for the reduction in the value of the car but in truth this figure is very hard to calculate. The actual price a car fetches at auction on a particular day can be affected by all sorts of things, not just its condition, so they will do their best to calculate the diminution in value of the car. This calculation is part art and part science.

If you think a charge is particularly high, challenge it. Every leasing company will be prefer to explain something rather than leaving you dissatisfied.

Most leasing agreements say that the supplier won’t charge you for unfair wear or tear if the value is less than a fixed amount, often £100 or £150.

And if you really don’t want to eliminate the issue of damage charges, have every vehicle professionally inspected shortly before the end of the lease so that any necessary remedial work can be done before the lease ends.

Professor Colin Tourick

Grant Thornton Professor, University of Buckingham Business School

Lease accounting changes. What’s this all about?

 

The International Accounting Standards Board has published a new set of rules – an “accounting standard” – setting how companies should account for leases in their books. This standard has been nearly a decade in the making, though the need to change lease accounting has actually been on the radar of investment companies and academics for more than thirty years.

The business and trade press has been full of articles discussing how these new rules will affect companies’ reported results and the overall attractiveness of leasing.

In this article we will take a rather simpler approach and try to answer the question; At the most basic level, what’s this all about?

All companies publish two key documents annually: a profit and loss account and a balance sheet. The profit and loss account shows revenues, expenses and the difference between them – profits. The balance sheet shows assets and liabilities and the difference between them – shareholders’ funds (or ‘net worth’).

If a company buys a car it shows this on its balance sheet as an asset. In the old days, thirty or so years ago, if a company leased a car it didn’t disclose it on its balance sheet. It simply showed the lease rentals as an expense in its profit and loss account.

There are two types of leases; finance leases and operating leases. A finance lease is one where the risks and rewards of ownership are taken by the lessee (the hirer). The key risk we are interested in here is the risk in the residual value of the car – what it will be worth at the end of the contract. If the lessee bears this risk it’s a finance lease and if the lessor (the leasing company) bears this risk it’s an operating lease.

In the 1980s there was a debate between academics, investment companies and the leasing industry about the nature of finance leases. The academics and investment companies said that a finance lease was effectively a type of a loan that should be disclosed on the balance sheet as a liability, rather than the company just showing the rentals in the profit and loss account. The asset should be shown on the balance sheet as if the company had bought it and used a loan to finance it. The leasing companies said this was wrong and that balance sheets should only show the assets that companies actually owned. The leasing industry lost this argument and the accounting rules were changed in the UK (Statement of Standard Accounting Practice 21) and then internationally (International Accounting Standard 17), putting finance leases onto companies’ balance sheets for the first time.

Finance and operating leases have been treated differently ever since. As well as showing finance leases ‘on balance sheet’, companies also have to disclose details of their operating lease obligations in notes to the accounts.

But the investment companies were still not happy. They pointed out that the distinction between finance leases and operating leases was not particularly helpful to them. They wanted to know what assets were being used in the company, regardless of how these were being financed, so they were manually adjusting companies’ reported results.

Their argument went something like this. Imagine two identical companies that operate in the same market and use the same assets acquired at the same time. Company A buys its assets and funds them by borrowing money from the bank. It makes monthly loan repayments and then repays a lump sum after a few years when it sells the assets. Company B leases its assets from a leasing company, makes monthly payments and then hands back the assets at the end of the lease. The cash flows of these two companies could in fact be identical, but under the current rules Company A shows these assets on its balance sheet and Company B doesn’t. If an investment analyst wants to see which company is making best use of its assets they calculate ‘return on assets’. Company B will have fewer assets on its balance sheet so its return will look higher. So to get a realistic picture the analyst will have to trawl through the notes and try to work out a value for the assets.

There has been another protracted series of discussions about lease accounting lasting nearly a decade, and the academics and investment companies have once again prevailed. The result is a new set of accounting rules called “International Financial Reporting Standard 16, Leases”, which replaces IAS17. Listed companies, banks and some other ‘public interest’ businesses have to comply with IFRS16 for accounting periods commending on or after 1 January 2019 but many will need to change their systems to comply with the new rules well before that in order to be able to show 2018 comparative figures in their 2019 accounts. The vast majority of businesses won’t be affected unless we see a further change in the rules.

Under the new rules the distinction between finance leases and operating leases disappears. The standard-setters have said that even when a company leases an asset under an operating lease, can never own that asset and doesn’t do anything other than pay rentals then hand the asset back at the end of the contract, the lessee still does have an asset; the right to use the asset. It is this which has to be shown on the lessee’s balance sheet (where it will need to be depreciated) and there will be a corresponding liability on the other side of the balance sheet.  Lessees’ profit and loss accounts will have to include depreciation and interest cost on these assets and not the rental charge. As interest cost is always higher in the earlier stages of finance agreements than later on, lessees will now report greater costs in the early years of a new lease than before.

Short-term or low value leases are exempt from the new rules.

The review of lease accounting was a joint exercise between American and international standard-setters, but they could not agree on some points so it is likely that once the US Financial Accounting Standards Board publishes its new standard this will differ from the international standard, adding a degree of complexity for international groups quoted on multiple stock exchanges.

We will have to wait to see whether the European Commission approves of the use of IFRS 16 in Europe, and how (and whether) the tax rules will change following these accounting changes.

As it currently stands, most commentators don’t believe that these changes will have a significant impact on the attractiveness of operating leases (such as contract hire), because the vast majority of companies have chosen operating leases because they are a great form of financing rather than because of any accounting considerations.

Nonetheless, these changes will have a dramatic affect. The IASB believes that affected businesses have US$3.3 trillion of lease commitments, over 85 per cent of which do not appear on their balance sheets.

Professor Colin Tourick

Grant Thornton Professor, University of Buckingham

 

Colin Tourick’s article on mobility management

Fleet management – what’s next?

As a fleet manager you have some clear priorities. You need to: keep your staff mobile so they can do their jobs effectively; ensure that the cars and vans they choose are appropriate for the jobs they need to do; keep costs to a minimum; handle a lot of admin (parking fines, driver licence checking, etc); manage relationships with suppliers (which might include a leasing company, broker, dealers, manufacturers, insurance broker, etc); keep abreast of a wide range of regulatory issues (health and safety, tax, lease accounting, etc); keep drivers happy and strike the right balance between the needs of all your stakeholders including your company’s employees, shareholders, management, HR director and FD.

You probably outsource some of this work to expert third parties but being a fleet manager is still hard work.

The purpose of this article is to highlight a change that is beginning to happen and which could make your stakeholders happy. Though I’m not sure it’s going to make your life any easier.

Historically, a fleet manager would either buy or lease company vehicles and would probably outsource the maintenance and administration to a leasing or a fleet management company. A whole industry – the fleet industry – has grown up to help fleet managers in their role. Manufacturers, dealers, quick fit companies, roadside assistance companies and other suppliers are attuned to your needs and will do all they can to make your life easier.

If you lease your cars it is quite likely that your leasing company gives you access to online tools to help you do your job more effectively: obtaining quotes, downloading P11D information, keeping tabs on who is driving which vehicle, seeing which cars will need defleeting soon, and so on. These tools and services have been refined over decades and in general are very good.

However they were designed to answer one basic question that every fleet manager asked; “What’s the best way to fund and manage our company vehicles?”

Now there’s a new question that fleet managers are asking; “What’s the best way to meet our company’s mobility needs?”

Mobility – it’s a word that keeps on popping up in fleet circles nowadays and if you haven’t considered it now may be a good time to start.

Your employees need to use their company or private (grey fleet) cars for business journeys but you need them to think before they jump behind the wheel every time they go from A to B. Is this journey actually necessary? Is videoconferencing a viable option? Would it be realistic to go by public transport? Could they share a car or use a pool car? Or if they don’t have a company car and are thinking of renting a car, could they use another employee’s company car instead?  Would a car club car be a viable option?

It would be great if they could think through these options and then make the conscious decision to use their company car or personal car if – and only if – that was indeed the best option.

What do we mean by the ‘best’ option?

The best option is probably the one that offers the best trade-off between cost, emissions, journey time and hassle value. And the calculation of this trade-off will probably differ wildly between different businesses.

There’s no point an employee saving £5 off the cost of a journey if the decision-making process is so complex that they end up spending more than this in time-cost whilst making the decision.

And there’d no point saving a few g/km of CO2 by using a lower-emission car if the overall journey is going to take an extra hour (and risk leaving the driver stranded at a train station for another hour if they miss their connection). Though of course it may well be that a rail journey will be a more effective option than a car journey even if it does take much longer, because the employee can work on the train but cannot do so when driving a car.

For some companies (especially those in heavy industries where emissions are the subject of great scrutiny), CO2- or NOx-reduction might be very highly weighted in this trade-off calculation, whereas in other industries cost-reduction might be more important.

So there are all of these trade-offs that need to be considered in designing a system – a mobility system – to optimise cost, emissions, time etc.

Unfortunately there is at present no system out there that can help fleet managers automate this decision process and then organise the journeys. It would be great if a driver could go onto their company’s intranet, key in the details of the journey they want to take and be told the optimum way to travel. It would be even better if the system then gave the driver the option to click a button that would automatically book the railway ticket, reserve the pool car, book the car share or do whatever else was then necessary to make the journey happen, whilst simultaneously registering the cost-savings and CO2-reduction that had just been achieved. And whilst taking into account the company’s travel rules, which would include decisions on how to deal with the trade-offs referred to above.

Whilst there is no such comprehensive system available today, partial systems do exist and a lot of companies are working on comprehensive solutions.

A truly comprehensive solution would need to hold a list of employees (including their home and office addresses), details of the business and personal cars that are currently available to be driven on business journeys (including cost per mile and CO2), the current location of those cars (derived from telematics units), live links to external suppliers (eg daily hire company, car club, rail company etc) and links to live traffic and transport timetables (such as on Google Maps).

If you like the idea of such a system, have a chat with your leasing, car rental or fleet software company and ask how they can help you move forward in this new era of mobility management.

Professor Colin Tourick

Grant Thornton Professor of Automotive Management

 

 

 

 

 

 

 

 

Comment on the VW diesel scandal

AFI

 

 

Quote published in Asset Finance International

Colin Tourick, co-founder of International Auto Finance Network and founder of Colin Tourick & Associates said:

“This is the first revelation that could substantially dent VW’s fleet sales. If company car drivers think that VW’s CO2 emission figures are understated it might make them opt for another manufacturer when choosing their next company car. VW needs to clarify this issue rapidly to avoid any damage to sales”.

 

Article in Fleet News on used car leasing

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Full text here

Difficulties in obtaining credit for some fleet operators has seen one leasing company prepared to fund used cars and vans as well as new.

CPW Trading, which trades as Lancashire Commercials, with sites in Morecambe and Newcastle, has launched CPW Leasing.

While running a fleet of used vehicles is not a new concept – BCA and Manheim both buy used cars for their fleets from their own auction centres – fleet industry expert Colin Tourick believes used car and van leasing has the potential to be massive.

More than half (51%) of respondents to a Fleet News poll said they would consider leasing a used car or van, but Tourick said: “The problem for the leasing companies is that they are not set up to offer used vehicle leasing.”

Lancashire Commercials sources a wide range of makes and models of cars and vans, with vehicles up to two years old and averaging around 20,000 miles typically arriving from daily rental companies.

Dave Ward, CPW Leasing’s commercial director, said: “Through our funding partners, with their own loan books and terms and conditions, we have the flexibility to customise lease packages on new and used vehicles to meet individual customer needs.

“Sometimes it may be cheaper to have a new vehicle because of the manufacturer discounts available, but on other occasions a used vehicle may be more appropriate.”

For lessees, the main benefit of leasing a used vehicle is a lower monthly rental than for the equivalent new car or van. Meanwhile, the lessor has a lower risk, as the vehicle will not suffer the level of depreciation of a new model.

CPW Leasing is expecting to write agreements initially on an average 10 used cars and vans per week. Used vehicles will initially be available on finance-only deals. The company hopes to have a maintenance package solution available by mid-year.

Despite CPW Leasing’s optimism, established contract hire and leasing companies do not, in the main, believe used vehicle leasing is a viable option.

Andy Hartley, commercial director, Lex Autolease, said: “Regardless of whether the vehicle is new or used, company car drivers are still taxed on the original list price which, once combined with the increased servicing costs, potential reduced reliability and current availability of discounts on new vehicles, don’t provide a compelling proposition.

“In respect of leasing used vans, there are additional considerations regarding running costs which increase as vehicles age, and also fuel consumption comparisons as new technologies are introduced to new vehicles.”

In the late 1990s Lex Vehicle Leasing launched a nearly-new leasing operation to take advantage of stocks of pre-registered cars and three to six-month-old ex-rental models. Vehicles were RAC inspected pre-delivery.

Popular with brokers and promising savings of around £90 a month versus a new car, the man who established the operation, John Wrabin, told Fleet News: “Many brokers loved the proposition, but corporate business was less successful due to restrictive policies and preconceptions.”

Wrabin claimed the nearly-new operation grew to around 5,000 units, but when he left Lex in 2001: “I and the team I established moved on. The momentum and interest waned.”

Tourick said: “The main upside of used vehicle leasing is cost reduction – no need to fund the initial depreciation of the vehicle. The lessor also benefits because they have more equity in the vehicle throughout the lease which protects them in the event of client default.

“Dealer-owned and possibly manufacturer-owned leasing companies would be best placed to exploit the used vehicle leasing opportunity, because they can physically inspect and, if necessary, repair vehicles on site before sending them out on leases.”

Peter Cakebread, managing director of Marshall Leasing and chairman of the British Vehicle Rental and Leasing Association, said: “Given the offers available on new cars and the VAT efficiency of those vehicles versus used in most circumstances, there is not always a cost advantage.”

However, he added: “I can see the benefit of used vehicle leasing for some smaller businesses.”