Company car perk losing its popularity

EMPLOYEES are increasingly being given the choice between a company car and a cash alternative, with some firms withdrawing the 'perk' car altogether.

Changes in the tax regime and a desire to give employees greater choice are said to be the main motivations in the first significant move away from the company car, according to a study by Incomes Data Services, an independent pay research organisation.

Allowances of between pounds 300 and pounds 750 a month are being paid instead of the status car with the extra money being allocated on the company's estimate of car cost or leasing charges.

The use of cash alternatives is expected to continue to grow as the Government moves towards making the company car 'tax neutral' in comparison with extra pay.

Proposals from the Inland Revenue to base tax charges on the cost of the car rather than a combination of engine size and cost could mean tax rises of up to 40 per cent for some car users.

Certain car types remain tax efficient for employees but the incentive for employers was largely removed in the 1991 Budget when national insurance was made payable on the benefit.

Relatively few companies are withdrawing company cars completely, but five out of fourteen City firms contacted by IDS had bought out their executive car scheme.

JP Morgan, the American investment bank, replaced its cars with allowances ranging from pounds 4,300 to pounds 6,700, while Bankers Trust is gradually phasing out its 420 status cars with cash alternatives of up to pounds 7,480.

The scheme launched by Midland Bank, where staff can receive up to pounds 650 a month, was planned to give employees greater choice for those doing fewer than 18,000 business miles a year.

'Staff who do high mileages have to take the car but we wanted greater flexibility for employees to decide for themselves if they really want a company car or would rather have the money,' a spokesman said.

Several employees use cars as one item of a list of benefits which are offered. BHS, which offers allowances beginning at pounds 178 a month for a Ford Escort, lets senior managers pick from a range of benefits of which cars are one.

Staff take-up of allowances depends on several factors including the amount of the cash alternative and how useful the company car will be. Nikko Europe, which had 68 status cars at its London office, had a take-up rate of 25 per cent by offering allowances of up to pounds 580 a month. Where the cash alternative has been less generous or the company based outside London, the take-up has been as low as 5 per cent.

There are about 1.9 million company car users but the tax changes are most likely to affect the significant minority of 'perk' cars which are not used for business mileage.

Car sales, page 18

----------------------------------------------------------------- Table: Cash allowances offered instead of company cars at the TSB ----------------------------------------------------------------- Car Allowances pounds per month Ford Sierra 1.8 GLX 315 Ford Sierra 2.0 Ghia 366 Ford Granada 2.0i Ghia 446 Ford Granada 2.9i Ghia 515 Rover 827 SLi 594 Jaguar XJ6 3.2 739 -----------------------------------------------------------------