Colin’s updated thoughts on Brexit

Article originally published by Fleet News 30 September 2019

https://www.fleetnews.co.uk/guest-opinion/hope-for-the-best-plan-for-the-worst

We are in the vortex of a national crisis. Actually, crises.

* Constitutional – can the PM refuse a direct instruction from Parliament?

* Democratic – which should prevail, the will of the people or the will of their parliamentary representatives?

* Economic – no one seems to know how bad things will be when we leave the EU, (with or without a deal).

* Social – there has been a sharp increase in antisocial behaviour (racism in particular).

* Political – have we ever seen so many disaffected MPs?

This is a particularly British crisis. No riots, no petrol bombs, no tanks on the streets. Perhaps we should be thankful for such small mercies.

Many businesses have yet to assess how leaving the EU will affect them, deal or no deal. Fleet managers are wondering what to do next. Frankly, they have already had a pretty bad year, dealing with the impact of WLTP, sharply rising BIK rates and employers wondering whether to bail out of their company cars and take cash instead.

In the past few months, I’ve found myself giving a piece of advice to managers I’ve rarely given in 40 years in fleet: wait and see what happens. We don’t know if there will be a deal and have no idea what shade of government we’ll see if/when there is a general election.

It seems to me that some of Labour’s policies are a long way from business-friendly. Would a Labour government lead to a reduction in business investment and economic activity? And, if so, how might that affect your business?

The Liberal Democrats are riding high in the polls. They would campaign to hold another referendum and remain in the EU. Would that mean business as usual?

The Conservatives want out, but would they really leave without a deal?

And can any party win a majority?

Waiting and seeing is not the same as doing nothing. There is a lot to do. ACFO’s call for fleets to prepare a disaster recovery plan is spot on. A no deal Brexit will lead to disruption, delays, price hikes and some shortages. We need to hope for the best, plan for the worst and stay flexible. Now is a very good time to delay vehicle replacements.

Car subscription services: proceed with caution

Article first published in Fleet Leasing 19 December 2019

https://www.fleetnews.co.uk/fleet-leasing/news/insight/car-subscription-services-proceed-with-caution

Should leasing companies move into the car subscription market? Colin Tourick outlines the risks involved.

There has been a growing interest in car subscription services, also known as car-as-a-service, for a whole host of well-understood reasons.

These include:

  • more kids going to university than ever before and leaving with £50,000 of debt
  • more people moving to cities, where public transport is plentiful and parking is a nightmare
  • the rising cost of car ownership 
  • people becoming used to paying for things by monthly subscriptions that they can cancel at short notice
  • the heavy burden of company car tax.

Under a car subscription, clients are offered cars on no-strings-attached contracts, either for a short, fixed duration of, say, three months or cancellable on demand without penalty. The contracts include full maintenance and servicing, insurance, rapid delivery, a small down payment and either a short, fixed duration (perhaps two or three months) or the flexibility to hand the car back at will.

A large YouGov/Zoura study recently showed that 24% of Brits would forego buying a new car and subscribe to a car-as-a-service product within the next year.

Millennials were the group most interested in this option, and, as the researchers said, this is “pushing companies to rethink their business model”.

Those companies, of course, include leasing companies.

Leasing companies’ role in the increase in car subscription services

More and more lessors are offering personal contract hire (PCH) and personal contract purchase (PCP) to meet rising demand from consumers and to ensure that, when an employee decides to opt out of their company car, the opportunity to supply them with a car is not lost forever to a manufacturers’ captive finance company.

And now it is being suggested that subscriptions services will be the next ‘big thing’.

LeasePlan recently entered the market with its monthly car subscription service, Subscribe and Drive.

CEO Tex Gunning said: “Increasingly, our customers – whether they are corporate, SMEs or private individuals – would prefer a ‘car-as-a-service’ with no strings attached in terms of car type or duration. They just want ‘any car, anytime, anywhere’.”

Volvo, Wagonex and Drover also offer car subscription services in the UK, while in America the market is currently dominated by car manufacturers, including BMW, Audi, Cadillac, and Porsche.

Should your leasing company get in on the action?

Many fleet leasing companies are looking at how they can get a piece of the action. But should they?

Traditionally, when a leasing company delivered a new car to a fleet client it stayed on hire for three or four years. They collected it at the end of the contract, ideally when delivering the driver’s next car. There is no ‘down time’ in this arrangement: the client pays for the car throughout the hire period and also pays if they want to terminate the arrangement early.

If fleet clients needed cars for shorter periods – perhaps while the driver was waiting for delivery of their new car or to meet some other short-term requirement – they used the services of daily hire companies, and the deal was often arranged by the leasing company.

There is a very good reason for this division between leasing companies and rental companies.

They cater for the needs of very different customers.

Someone who wants a car for three years will be very specific about their requirements. Colour, engine size, fuel, transmission, make, model, derivative, factory-fitted options, and so on. A tailor-made product.

Someone who wants a car for a few days or weeks generally isn’t bothered about most of these things.

They want to car to be of a certain size and quality and to able to transport a certain number of people and a certain amount of luggage, but beyond that they don’t much mind which car they get. That’s why car rental companies offer cars in groups: mini, economy, compact, full-size and so on.

When they tell the consumer they will be getting a ‘Fiat Panda or similar’ they are managing expectations and giving themselves the flexibility to deliver whatever car in that group happens to be available.

“If I was running a fleet leasing business I’d be talking to colleagues in the daily hire sector to discuss how we can meet demand from my clients for flexible leasing, using the rental company’s resources.” Colin Tourick

Daily hire companies have a very large number of cars available, either from their own fleets or by arrangement with other rental companies.

These cars have been bought at massive discounts, new from the manufacturer, and when they come to be sold nine to 12 months later the rental company will have suffered very little depreciation or maintenance cost.

The driver may have collected the car from the rental company’s local depot, or if the client is big enough and has a sufficient number of rental days per year, the rental company might have delivered it to the driver’s place of work.

Rental companies have massive infrastructure to support this: many cars available at short notice, a good spread of depots across the country and a small army of drivers available to move cars. So the direct cost per hire and vehicle movement is low.

Most fleet lessors have none of these natural advantages. They buy cars at good prices, certainly, but normally nothing like the prices paid by rental companies.

When a driver signs up for a subscription service from a leasing company and wants a car for, say, three months, they are likely to want to choose their own car rather than leaving the choice to the supplier.

But the leasing company is not going to be able to let the driver configure the car they want, because no other driver of that car in future may want that particular spec. How is the lessor to deal with this? Buy more cars than it needs, or try to channel clients into taking cars that don’t meet their specific needs?

Neither option is good.

The driver is likely to want to have the car delivered, which means it will need to be moved – at the lessor’s expense – several times each year.

Giving the client the flexibility to end the contract on demand, at little or no cost, means giving them the opportunity to cause financial pain to the lessor.

The way to avoid all of this pain is for the lessor to charge rentals that are high enough to cover all of the additional costs that are implicit in the delivery of this type of product. But those costs are going to have to be very high indeed to ensure they cover void periods and the need to move cars long distances around the country. It will be hard to make them look competitive against the cost of, say, a conventional three-year lease or indeed a corporate daily hire rental.

One way to reduce some of these costs is for the lessor to show, on their website, the vehicles they currently have available.

If a driver happens to want one of those, great, but if they don’t, will the lessor be willing to let the driver click off that site and onto a competitors’ site or will they try to retain the client by offering them the chance to specify the particular car they want? That way they’ll win the deal, but at what cost?

And will fleet lessors ever really be able to compete with daily rental companies for this type of business, given the massive advantages those companies have – both infrastructure and price?

This is a risky product for the fleet leasing industry as currently configured.

Just because there is demand for something, it shouldn’t automatically follow that lessors should be clamouring to buy new cars (or allocate used cars) and set up departments to meet that demand.

The risks here are high, the revenues uncertain and the opportunity for losses are great.

Also, this product isn’t new. A number of companies have been set up over the years to offer ‘flexible leasing’, and none of them has been particularly successful. One or two have failed spectacularly,

If I was running a fleet leasing business I’d be talking to colleagues in the daily hire sector to discuss how we can meet demand from my clients for flexible leasing, using the rental company’s resources.

Synergy Automotive hits service highs

Great news about a small business in the leasing sector delivering world class-customer service.

https://www.yorkshirepost.co.uk/news/synergy-beats-top-firms-for-service-index-1-9364776

https://www.yorkshirebusinessdaily.co.uk/2018/09/25/yorkshire-leasing-provider-outperforms-fortune-500-companies-in-world-class-table/

https://www.harrogatechamber.co.uk/NewsItem.aspx?ID=360

More here  and here

Company Car and Van Tax 2018-19 is published

 

The 8th 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.

Company Car and Van Tax 2018-19 has been fully updated and includes information on optional remuneration, salary sacrifice and car allowances.

The book 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.

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 £50 paperback or £41.67+VAT PDF ebook.

The paperback will be available late June 2018, PDF is available now for immediate download.

As featured in

Danger – Diesel

Article published in Fleet World

Strolling through a leafy London suburb, I happened to notice a parked car onto which someone had written the words “Diesel Danger”. As I had been planning to write about diesels this month this was too good an opportunity to miss, so I whipped out my camera and started taking photographs.

I then noticed Bill Oddie standing next to me (yes, really, and if you are under 30 I’m sorry if you don’t know who I’m talking about). He was wearing a facial expression that said “Who the heck are you and why are you taking photographs of my car?” I introduced myself and explained that I was taking the photos to accompany this article. He said “Will you be able to do anything about the scourge of diesels?” and I said probably not, but I would try. He then smiled and invited me to look at the other side of the car, on which he had written “They said it was safe….”.

He’s right of course, they did tell us diesels were safe. When the tax system was altered to take account of engine emissions, companies changed their car schemes to favour diesels because this was the environmentally-friendly option that saved NI for the employer and income tax and NI for the employee.

The problem was, whilst reducing CO2 would save the planet, an increase in the number of diesel cars would boost the quantity of oxides of nitrogen (NOx) being pumped into the atmosphere, and NOx is a pollutant that kills.

We now have a perfect storm brewing. Diesel is a dirty word, the fuel has no friends in the corridors of power, the Transport Minister has already warned people off buying diesel cars and from 23 October Sadiq Kahn, the Mayor of London, will introduce a £10 toxicity charge for cars, vans, minibuses, buses, coaches and HGVs not meeting Euro 4 standards.

DEFRA lost a High Court case in May as a result of which it was required to publish its draft plans for addressing the problem of nitrogen dioxide.  We learned from this that the government likes the idea of local authorities introducing clean air zones (but isn’t too keen on motorists being charged to drive into them), expects Birmingham, Derby, Leeds, Nottingham and Southampton to introduce clean air zones by 2019 and wants dozens more towns and cities to follow suit soon after. The much-discussed diesel scrappage scheme is still being considered, though if introduced it would clearly have to be focussed on removing the most polluting vehicles only otherwise the cost would be astronomical (£60bn were every diesel car and van to be scrapped).

For fleet managers, the key line in the report was buried in clause 54 “The Government will continue to explore the appropriate tax treatment for diesel vehicles and will engage with stakeholders ahead of making any tax changes at Autumn Budget 2017”.

Whilst civil servants are not allowed to speak publicly on matters affecting policy in the run up to the election, the mood music coming out of the corridors of power is not that encouraging for fleet managers. The government urgently wants to reduce the number of diesel cars on the road. As someone told me “They are looking at everything: benefit in kind tax, vehicle excise duty, writing down allowances, AMAP rates, national insurance, everything”.

Whilst sales of diesel vehicles are down 6.4% year on year, there were still more than 400,000 diesel cars sold in the year to end April 2017 and the government thinks this number is too high.

As it happens the blanket “diesel is bad” analysis is a bit unfair on car manufacturers, who have reduced NOx and other emissions in line with the latest Euro 6 standard, which makes new vehicles cleaner than ever before.

Source SMMT

Emissions standard Applied to new passenger car approvals from Applied to all new registrations from
Euro 1 1 July 1992 31 December 1992
Euro 2 1 January 1996 1 January 1997
Euro 3 1 January 2000 1 January 2001
Euro 4 1 January 2005 1 January 2006
Euro 5 1 September 2009 1 January 2011
Euro 6 1 September 2014 1 September 2015

Euro 6 was implemented for new vehicle approvals on 1 September 2014, and all new registrations had to comply with Euro 6 standards from 1 September 2015. So a significant proportion of existing fleet cars now emit very low levels of NOx indeed, as these charts show.

Petrol

Emissions standards CO: HC: NOx: PM: PM:
Euro 3 2.3g/km 0.20g/km 0.15g/km
Euro 4 1.0g/km 0.10g/km 0.08g/km
Euro 5 1.0g/km 0.10g/km 0.06g/km 0.005g/km (direct injection only)
Euro 6 1.0g/km 0.10g/km

 

0.06g/km 0.005g/km (direct injection only)

 

6.0×10 ^11/km (direct injection only)

 

 

Diesel

Emissions standards CO: HC + NOx: NOx: PM: PM:
Euro 3 0.64g/km 0.56g/km 0.50g/km 0.05g/km
Euro 4 0.50g/km 0.30g/km 0.25g/km

 

0.025g/km
Euro 5 0.50g/km 0.23g/km 0.18g/km 0.005g/km 6.0×10 ^11/km
Euro 6 0.50g/km

 

0.17g/km

 

0.08g/km

 

0.005g/km

 

6.0×10 ^11/km

 

 

However, you can be sure that as more members of public hear the message “diesel is bad” they will be less inclined to buy used diesel cars. This can only reduce residual values and lead to an increase in lease rentals (or depreciation for fleets that buy their cars or fund them via hire purchase).

Which takes us to the key question for fleet managers: given that the government is so keen to discourage the use of diesel cars, how can fleet managers protect their companies (and employees) against rising costs? The obvious answer is to start looking seriously at the alternatives.

Whatever changes the government introduces we can be sure they will still be committed to reducing CO2. The need to reduce global warming isn’t going to go away, so the safe bet is to look for low-CO2 alternatives to diesel-engined vehicles.

And there are a lot to choose from these days.

For example, smaller, petrol-engined cars. Many manufacturers have done a great job in making smaller power units that are lighter but more powerful. Some of these cars deliver very good performance with low CO2 and NOx output.

If you haven’t yet added hybrid vehicles to your fleet, now is the time to consider these. Low emissions, high mpg, proven technology and pretty high residuals (which deliver low rentals). What’s not to like?

You don’t have any plug-in electric cars on your fleet? Range anxiety can be an issue with battery-powered vehicles, but if you analyse the journeys your employees are driving you may well find employees for whom an electric car would work most of the time, except for the occasional journey that could be handled in a rental car or pool car. Most of these cars are still expensive to buy, even with the government grant, but the cost of the fuel is tiny compared with filling up at the pump.

This sort of analysis is valuable at any time but could be particularly valuable now that we know the government has diesel in its cross-hairs. Looking at your attitude to diesel now could make a lot of sense.

Professor Colin Tourick

ExpertEye Fleet Industry Review

PRESS RELEASE

21st April 2017

UK Fleet Operators anticipate greater demand for petrol vehicles

 The latest ExpertEye Fleet Industry Review highlights a move towards petrol vehicles for UK fleet operators together with a growing demand for alternative fuels.

Produced in association with Professor Colin Tourick from University of Buckingham, ExpertEye’s latest review provides valuable insights into the latest status and views of the UK fleet marketplace.  Despite Brexit now a certainty, coupled with the recent election announcement and news of changes to company car taxation in the Spring Budget, the UK economy is not showing signs of drastic change.

Based on a survey of over 200 fleet operators the findings include:-

  • More companies are putting petrol-engined cars back onto their fleet lists, or drivers themselves have decided to opt for petrol.
  • Respondents expect to see a reduction in diesel in the next two years, with electric, electric range-extended and hybrid engines gaining in popularity. A significant number of them believe that petrol will be making a comeback.
  • Almost no respondents (the UK’s fleet operators) expected the economy to shift drastically either up or down but they are slightly less optimistic than before.
  • More than half of respondents expected no change in demand for cars and more than three quarters expected no change in demand for LCVs. Of the few who expected demand to decrease, 20% said there would be decreased demand for cars (the highest level since H2 2013) and 7% said there would be decreased demand for vans.
  • Contract hire remains the predominant form of finance used by businesses, though there has been a steady growth in respondents using finance lease and Professor Tourick suggests reasons for this in the Review.
  • Reliability, fleet running costs and fleet safety and risk management remain top of respondents’ concerns as they ponder fleet management decisions they will be making in the next 12 months.

The ExpertEye Fleet Industry Review is based on a biannual survey of fleet operators which measures their practices and references attitudes and opinions on a wide range of issues:

  • fleet profiles and policies
  • the current economic and fleet environment
  • factors influencing supplier and vehicle choice and
  • Predictions about vehicle requirements and influences.

With trends going back 7 years this report contains a unique insight into the key factors driving fleet acquisition decisions including commentary and analysis from a leading industry expert.  The Review contains a summary of the survey and analysis of the results provided by Professor Colin Tourick at the University of Buckingham, on behalf of ExpertEye ag.

About ExpertEye

ExpertEye offers extensive insight into the automotive market across Europe.  Utilising research and key data from leasing providers, vehicle manufacturers, dealers, fleet operators and the drivers themselves, we provide the complete range of business feedback about all aspects of the leasing, buying, maintenance and renewal processes.

For more information please contact info@experteye.com

The Finance Bill – a seismic shift for fleet managers

Article published in Fleet World

Normally, when the government publishes the draft wording of a Finance Bill, the fleet press and commentators rush to give their thoughts, but that didn’t happen on 20 March when the government published Finance (No. 2) Bill 2016-17, the legislation that enacts the chancellor’s spring budget. They had good reason to hesitate, because the government’s proposals are complex and far-reaching and it seems that everyone has needed to take a little longer to work out what it all means. The key areas fleet managers need to be aware of are that the draft puts flesh on the bones of the new approach to salary sacrifice that was announced in the Autumn Statement and introduces a very different approach to cash allowances.

At least one major accounting firm has suggested that the new rules will also affect Employee Car Ownership Schemes (ECOS) but at the time of writing this is unclear, as is the position when an employee who has the right to a cash allowance instead of a company car selects a company car below their entitlement level, i.e. they ‘trade down’. Trading up was referred to in the draft legislation but not trading down.

This article ignores these uncertainties and concentrates on the things we definitely know.

As the government had already announced, from 6 April 2017 any tax and national insurance contributions (NICs) advantages under salary sacrifice arrangements will be withdrawn.

Just to recap, under a salary sacrifice arrangement an employee gives up the right to some salary and receives a benefit instead.

When salary sacrifice is used for cars, the employee saves tax and employees’ NIC, and the employer saves employers’ NIC. The employee pays benefit in kind tax under the normal rules for company cars. Historically, if an employee chose a relatively low cost, low-CO2 car they could make savings. Salary sacrifice schemes have predominantly been used to provide cars for employees who would not otherwise be entitled to a company car, most of whom have been basic rate taxpayers.

The draft legislation describes these arrangements as ‘optional remuneration arrangements’ (OpRAs). The industry knew that salary sacrifice schemes were being reviewed in 2016, but before last November they had no idea that the government would include cash allowances in the rule changes. This has been confirmed in the wording of the draft bill.

If your company operates a salary sacrifice arrangement or offers benefits such as company cars or the option to take a cash allowance in lieu of those benefits, you need to understand the new rules. Even employers that have never offered salary sacrifice but offer employees the choice between a cash allowance and a company car are caught by the new rules. An awful lot of companies, tens of thousands and maybe more, now have to consider how these changes affect them.

The draft legislation describes two types of OpRA, both of which will now be regarded as conferring a benefit on the employee.

  • Under Type A arrangements the employee foregoes earnings in return for the benefit (e.g. a salary sacrifice car)
  • Under Type B the employee receives a benefit rather than some earnings (e.g. takes a company car rather than a cash allowance).

And here is the key piece of information: if an employee choses to take a benefit instead of an amount of salary, they will be taxed on the greater of the salary given up and the taxable value of the benefit in kind.

The legislation includes provisions designed to stop people claiming that a particular type of benefit or form of salary reduction falls outside the scope of the rules.

 

There are transitional arrangements. If someone took a car emitting more than 75g CO2/km on a salary sacrifice scheme before 6 April 2017 they will be taxed under the old rules (the normal company car BIK rules) until the earlier of 6 April 2021 or the date when they modify or renew the deal. If the car emits less than 75g CO2/km the old rules continue to apply.

If an employee changes or renews the OpRA on after 6 April 2017 the new rules will apply from the date of the renewal or change. Amendments that arise because of matters that are not within the control of the employer or employee – e.g. the car is written off and replaced, or the employee is allowed to vary the arrangement because they take are on extended sick or leave or maternity leave – are not regarded as changes for this purpose.

Is a car emits more than 75 grams CO2/km and the employee has sacrificed salary, they will be taxed either on the normal basis for a company car (which is broadly; list price multiplied by a percentage based on the CO2 emissions of the car) or on the amount of salary they sacrificed, whichever value is the higher. To determine whether the benefit in kind or the salary sacrifice delivers the higher value, any capital contribution made by the employee towards the purchase of the car or payments for private use are ignored in the initial calculation (called the “modified cash equivalent”).

Once the appropriate amount has been calculated the employee gets credit for any capital contribution (capital contribution [max £5,000] x the appropriate percentage). Credit is then given for any private use contribution.

Fortunately, HMRC has provided an example of how this will work in practice. Assume an employee has a car for the whole of 2017-18, for which they sacrificed £300 salary per month, and they also paid £1,500 to get a higher spec car than their limit allowed. The car’s list price is £20,000 and it has an appropriate percentage of 17%. The normal cash equivalent value of the vehicle would be:

  • £20,000 less capital contribution £1,500 = £18,500 x 17% = £3,145

The modified cash equivalent is:

  • £20,000 x 17% = £3,400 (the capital contribution is ignored).

The sacrificed salary exceeds the modified cash equivalent, so the sacrificed salary will be used to calculate the additional amount to be treated as earnings and taxed.

Therefore the taxable amount is £3,600 less £255 (capital contribution of £1,500x 17%) = £3,345.

This approach also extends to free fuel supplied to an employee who gives up salary for the right to receive free private fuel paid for by their employer. They will be taxed on either the cash equivalent value of the fuel (calculated on the normal basis where the fuel multiplier of £22,600 is multiplied by the appropriate percentage based on the car’s CO2) or the amount of salary sacrificed by the employee for the benefit of the fuel, whichever is the greater.

So if an employee sacrifices £400 per month and their employer pays for private fuel for a company car with an appropriate percentage of 20%, the cash equivalent of the fuel benefit will be £4,520, the sacrificed salary will be £4,800, and as the sacrificed salary exceeds the cash equivalent value of the fuel, the employee will be taxed on £4,800 not £4,520.

A similar calculation needs to be made if salary is sacrificed in return for being given a company van or free private fuel for such a van.

It’s going to take some while for fleet managers and the fleet industry to get their minds around this sort of logic and there are a lot of consequences of these new regulations.

  • When choosing their company cars, employees need to know how much tax they are going to pay. Currently this is normally shown on the leasing company’s quotation screen. In future, these screens will have to be modified to provide the correct figures, and the systems will have to hold information about cash allowances, capital contributions, personal contributions, etc.
  • Employers are going to have to decide whether to keep cash allowances at current levels or reduce them. If the company offers a generous cash allowance scheme many employees will find that they are being taxed on a cash allowance they haven’t received.
  • The new rules may reduce the incentive for employees to choose low CO2 cars. Employers have to decide how they wish to manage this, or indeed whether this is important to them.
  • Salary sacrifice schemes still work, but the interplay between salary sacrifice, cash allowances and ‘normal’ company-car based benefits in kind tax mean that leasing companies are going to ensure that their quoting system provide the employee with all necessary information on which to base a decision about whether to enter into the salary sacrifice arrangement.

Professor Colin Tourick