How to Run a Company Car Scheme

What is a company car scheme?

Essentially, a company car scheme is a system where a business or company will offer vehicles for its employees to use. These are for both business and personal use and are usually provided through methods such as business car leasing rather than outright purchasing.

For a more detailed breakdown, read about the benefits of leasing a car through a business.

These schemes are typically used in jobs that need travel, such as sales or construction, and are offered as a benefit to employees. In the UK, these are a highly popular type of perk to offer in many job roles.

What are the benefits of running a company car scheme?

Company car schemes are extremely popular to have in the UK as they can provide many benefits to both employees and employers. Here’s a list of benefits that can be achieved through a company car scheme:

Employer benefits:

• Employer National Insurance contributions (NICs) can be reduced
• Capital allowances can be claimed to reduce taxable profits
• Business awareness can be increased through company branding or advertising on the vehicles
• An organisation’s carbon footprint can be reduced if low-CO2-emission vehicles are used
• Helps to attract and retain talented employees

Employee benefits:

• Convenient for employees with less concerns about servicing, repairs, and replacement vehicles
• If vehicles are environmentally friendly, Benefit in Kind (BiK) tax can be reduced
• A valuable part of benefits packages that boosts employee morale
• Often equipped with more modern features and can offer technology that employees can’t always afford themselves

How do you set up a company car scheme?

Though at face value setting up a company car scheme may seem daunting, it’s fairly simple. If you’re also able to plan effectively, both the employer and employees will see substantial benefits.

Before beginning your company car scheme, you’ll need to have a think about a few different factors. Firstly, considerthe type of car you’ll offer to employees and the number of cars you require. Looking into how you’ll fundthe scheme is also important so that you can get arrangements in place.

There are options if you want to lease with bad credit, providing you flexibility when setting up your scheme.

Additionally, knowing details such as how many employees will be enrolled into the scheme, theestimated annual mileage, and if there will be any restrictions is key too.

Finally, be aware of the tax implications that come with offering a company car and compare the typesofschemes to find the best one for your business.

What responsibilities does a company car scheme bring?

If you run your own company car scheme, then there are several responsibilities that come along with it that you should know about. This includes various things such as tax implications and legal responsibilities.

Firstly, as the employer, you’ll be responsible for managing the fleet yourself, with the vehicles needing to be fit for purpose and suitable for the job role they’re offered for. Additionally, the business is required to cover insurance, registration, VED (vehicle exercise duty), and compliance costs on top of this.

The employer also needs to calculate and pay Class 1A NICs and P11D reporting is required for taxable benefits. Depending on the type of scheme as well, NICs can be reduced as it lessens an employee’s gross salary.

If fuel is used only for business purposes, then VAT can also be recovered, even when it’s bought by employees and claimed back on expenses. However, fuel bought by employers for private use needs to be paid for by using the fuel scale charges, which are based on emissions of CO2.

If vehicles are only used for business purposes, then company cars are eligible for capital allowances. With this comes the ability to take away expenditure from pre-tax profits. This amount does depend on a few factors, however, such as the age of the car and its emission levels.

What should you consider when setting up a company car scheme?

When choosing to set up a company car scheme, there are a few factors you should be considering in advance.

As mentioned, being aware of the vehicle’s suitability for the employee’s role is crucial. Choosing the right vehicle is key, as it can mean the difference between employees actually using the scheme or not. Looking into the CO2 emissions of these cars is important too, as it’s good to know about the tax implications this can have and you can select a car that can help your business meet your environmental goals.

Researching the running costs against your business budgets is another important consideration, as you’ll need to ensure that the cars you select are financiallysustainable for your business.

Monitoring your employeeturnover is another thing to consider. If it is high, then a company car scheme may not be for you. With high turnover, you may have to cancel a lease and pay early termination fees.

Also, if you choose to lease, comparing the differences between business and personal leasing is smart so that you can see which is more suited to your company.

Finally, be aware of the administrative burden of managing these vehicles as admin will increase should you set up a scheme.

What are the different types of company car schemes?

Though the more traditional method of getting vehicles for company car schemes has been to purchase a vehicle outright, there’s been a shift. Now, there are many ways in which company cars are sourced and funded, each with its own advantages and disadvantages that depend on what sort of organisation is setting up the company car scheme.

Contract Hire

With contract hire, a business leases a vehicle for a fixed term and mileage at a pre-agreed monthly cost. The vehicle is then returned at the end of the contract without an option to buy.

Things such as maintenance can be included in the contract as well, meaning that costs are predictable and easy to manage. It must be noted, however, that with finance rentals, only 50% of the VAT can be recovered if it’s used privately, compared to the 100% if it’s solely used for business purposes.

This method also allows for budgeting more precisely and removes any complications of needing to locate, maintain, and dispose of vehicles.

Finance Lease

A company car finance lease scheme works with a business leasing the vehicle and pays fixed monthly instalments over an agreed term following an initial payment. The company doesn’t own the vehicle, but it will appear on the balance sheet.

This type of lease begins by choosing the vehicle that you would like. After you’ve done this, we’ll set a monthly fee that’s based on factors like the leasing term, mileage, and the expected value of the vehicle at the end of the term. At the start of the lease, the vehicle’s end value is fixed, but if the resale value is lower than this agreed figure when the lease ends, you will end up paying the difference.

Contract Purchase

Contract purchases work similarly to leasing but have the option to buy at the end of the contract. The business will put down a deposit for a new car before then paying in fixed instalments that are based on a monthly contract. The option to buy will come in the form of an already agreed upon ‘balloon’ payment which finalises the purchase. Alternatively, businesses can choose to return the vehicle instead if they would rather not own it. Monthly payments are also lower due to the final payment.

Similarly to contract hire, contract purchase allows for lessened admin and set rental prices. They’re also a great way to free up capital to begin investing in other areas of your business. With the vehicle also showing up on the balance sheet, it allows for capital allowances to be claimed.

Salary Sacrifice

Salary sacrifices work by the employee covering the costs of the car through taking a salary reduction and paying company car tax. This can be highly tax-efficient, which is especially the case for low-emission or electric vehicles.

As things such as servicing, maintenance, insurance and even breakdown cover are included within the costs, these schemes are ideal for attracting more employees to a business. They’re given a chance to drive a new car at an affordable price, all while having a streamlined and simple experience.

If a salary sacrifice scheme would drop employees to below minimum wage, they aren’t always going to be cost effective and have limited viability for some businesses.

Outright Purchase

This one is the most straightforward option and is where the company will own the car from the beginning. As they own the vehicles totally, it means that the business can have full control over how it’s used and has full responsibility for its upkeep and servicing. However, this is a costly method, with upfront costs and higher tax implications.