Firms seek a way to skirt tax clamp on car perks: Many drivers might be better off in taking the cash and switching to private ownership. Brian Friedman reports

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The Independent Online
THE COMPANY car has for many years been the most prized benefit an employee could acquire. Few perks confer the same instantly recognisable status. For directors and executives, it shows not only that you have arrived but also how far you have come and in what class you travel.

All that may now be a thing of the past, for from April next year, company car drivers will pay tax under different rules. These will reduce tax for most 'essential' users, but will hit the perk car driver where it hurts most - in the pocket.

Companies will suffer too, since they will pay employers' National Insurance on each employee's car benefit. So companies are looking to give extra cash for employees to buy their own cars.

Making the switch between company and personally owned cars is not difficult, as long as employers plan properly. A recent survey of boardroom thinking and practice, carried out on behalf of the Volkswagen-Audi Group, can point them in the right direction.

The survey, 'Driving Around The Boardroom Table', undertaken by Stoy Benefit Consulting (SBC), found that 75 per cent of companies were reviewing their car policies after this year's Budget. Of these, roughly half were looking at a straight choice between paying cash or providing a car.

The SBC survey, the largest ever undertaken on company car policy, was aimed at directors with responsibility for company car policy.

The survey covered 5,400 fleets ranging from one to 3,200 cars. The total fleet size reviewed was almost 200,000 company cars - about 10 per cent of the total UK company car fleet. Half the directors questioned felt they could introduce a cash alternative without employee resistance, so long as payments were fair and their executives would still be able to run the same size car.

One concern about the move to private vehicles was over the 'hassle factor' - sorting out problems and taking care of unforeseen costs when something goes wrong. With a company car, those are usually taken care of automatically by employer or leasing company systems. But now, the same features package can be made available in a leasing package for non-company customers.

Car manufacturers have not been slow to spot this gap in the market. Ford has its Options programme and Vauxhall similarly has one called Choices. On Friday Volkswagen-Audi introduced its private leasing scheme, called Solutions. This scheme, in simple terms, gives private drivers the features of a company car, tailored to their personal needs, in return for regular monthly payments. Customers can include a wide range of features in their payments, such as a guaranteed residual value, insurance, servicing, extended warranty and even the road fund licence.

Using Solutions to its fullest extent, the only add-on cost is petrol, or drivers can take on some of the administrative burden personally.

As part of the survey, SBC used a specially developed computer model to calculate how much better or worse off each respondent would be under next year's proposed list price regime, receiving cash and running a private car of the same standard. Across a range of 5,400 cars with a median list price of pounds 9,000, and costing in total more than pounds 116m, a surprising 57 per cent of motorists would be better off running their car personally rather than through the company.

Until the new tax regime begins next year, there is a window of opportunity for companies and their staff to decide what is best for them.

Brian Friedman is managing director of Stoy Benefit Consulting Ltd. 'Driving Around the Boardroom Table' is available from SBC by calling 071-486 5888; price pounds 95.

(Photograph omitted)