PwC webcast transcript

Employment solutions: company cars webcast

Good afternoon and welcome to our live webcast. The Climate is changing for Company Cars.

My name is Matthew Hunnybun a Partner in Employment Solutions at PwC and I’m joined today with one of my Directors Gary Hull. Gary might not look a day over forty but in fact he’s given a huge amount of Company Car advice over the past few years. As always we’ll have time for questions at the end, so please submit those using the box on the left hand side of you screens. We’ve got another pact agenda, so what we don’t propose doing is going into detail on the technical changes that we’ve covered in previous Webcast, but for those who weren’t able to join us previously we will give a broad outline of those changes.

So the agenda for this afternoon then is: Why is the climate changes for Company Cars and the starting point is Corporate Social Responsibility and Health and Safety issues. Clearly you cannot pick up a newspaper or magazine at the moment without picking up a massive amount on the environmental side of things and those are very important for employers and their employees and Health and Safety issues coming into force a result of April’s Corporate Manslaughter Act. Always like to start on a positive note. It means that employers are having to take this even more seriously, so we’ll cover that off. On procurement in funding the importance of getting the best route in terms of your funding and procurement methods as en employer, particularly in this cost conscious time is all important and then we’ll cover some of the changes from HM Revenue and Customs. The changes announced in the last budget. Changes that are going to come in 2009. We have certainty on now and also cover off the Revenues approach to such things as car ownership plans and also potential changes or not is the case may be on authorised mileage rates. Then finally just cover off the reward and HR implications, clearly it’s not possible to look at company cars without covering off the HR issues. Company cars continue to be one of the most demonstrative methods of providing a benefit through employees and I think you get both end of the scales here. You get some employees who want to show that they are environmentally sound, you get other employees at the other end of the scale who will be wanting to take a car that they might want to drive through a field at some point.

Let me just finish off before questions with why do you need to act now?

So, if we look at the next slide. Really is a combination of factors which will come in together in 2008. As you say company car and cash alternative revision by employers to employees is a very expensive part of the cost for the business and with belt tightening as they say this is getting some real focus at the moment. Then you’ve got the environmental agenda, the CSR, the Regulatory Changes as they say as a result of the Corporate Manslaughter Act and the changes in taxation. All coming together which are now resulting in employers reviewing their car fleets. Quite often they would have held off a number of years, particularly on the tax point, where they were looking for certainty on business mileage rates and on capital allowances.

You’ll see from the screen that there’s many questions that we will cover today. We won’t profess in giving the answers to those questions, because it will depend on what your objectives are, what you are trying to achieve and your fleet. So, what we would really want on the agenda this afternoon is that you are clear when you come away from this to think about; what are your objectives and priorities and making sure you are picking the right points up.

OK. Gary, would you like to just pick up on the CSR and Health and safety Issues.

Thanks very much Matthew and good afternoon everyone. It’s probably worth starting by referring to the work of Professor Julia King, as she was appointed by the Chancellor to look at a review of low carbon cars and she produced one of her report last year in part two and produced on budget Day this year. She came up with interesting statistics that mileage in the UK is increasing by about 1% p.a. currently and which means by the year 2050 they will be doubled the number of miles that are currently travelled on the roads in the UK.

The intention of the Government is to reduce the CO2 emissions of cars on our roads to 20% of the 2000 levels which is a staggering reduction they are looking to achieve. It would in fact require a reduction by 2050 if Professor King’s figures are correct of 90% in CO2 emissions for each mile driven on our roads. The technology can do a lot of this and it’s expected that we’ll be able to drive comparable cars to today’s cars in 5-10 years and have 30% less CO2 omissions. By 2050 perhaps the technology aspects will improve the environmental output of cars by maybe 50%. The EU also established some parameters that they want manufacturers to adhere to and are looking for all new cars on the road by 2010 to have an average of CO2 emission of just 120g per kilometre. For the Chancellor and his predecessor has taken this on board with the previous change to employee taxation and introduction of the CO2 phases and it’s gone a stage further in the recent budget with the announcement with capital allowances will also be based on CO2 going forward, which Matthew will cover.

Continuing with the environmental thing. The Monks survey which is produced by PwC on annual basis into company cars, indicates that one in four companies operate a green transport, which is encouraging. One in five companies has a CO2 target for their businesses and 36% is now considering that target. One in four companies actually has CO2 limit on the cars that employees drive. Currently around 75% of cars are diesel and around 34% of fleets in the survey are actually entirely diesel. Clearly there is no environmental factor there and also there are the mileage issues and the fact that you get better value for money potentially, especially for higher mileage cars. Another statistic is that interestingly although there’s still 85% of companies providing a cash alternative, that’s actually the lowest figures since 2003. So there does seem to be a small trend away from cash and I personally hope that that will increase in the future. One of the big issues that we have at the moment is the uncontrollable CO2 emissions that are actually emitted by drivers using their own car on business and there’s a real opportunity for employers over the next few years to actually look at using the tax system and beneficial treatment of certain cars, to what its called their grave fleet, that is the cars that drivers use that their own cars but they use on business to turn their grave fleet green. Theres also a requirement in the Companies Act now there is an obligation for quoted companies to have a report on environmental matters and explain how they impact on their employees and on the business and on the wider community. And through looking at your car scheme there’s a real opportunity to put some good news in that report going forward.

On the CSR agenda – all the factor found by Monks was that your company has banned smoking in company cars, which is a good sign. As Matthew mentioned, the Corporate Manslaughter and Corporate Homicide Act came into force from April. And we found that 46% of companies needed to actually to review their processes and procedures as a result of that introduction of that Act. But its still the fact that around 16% of companies don’t do the simplest thing of checking driving licences on a regular basis which is rather worrying, especially as it’s over a thousand drivers a year driving on company business killed on our roads. Quite a staggering fact.

The maximum penalties are yet to be announced for fairly to comply with the Corporate Manslaughter Regulations. But there’s a view there could be up to 10% turnover and certain there will be a requirement to publish the details of what’s happened and also the remedies you’ve undertaken to cure the problems in the future.

The big thing here is therefore the reputation of the business. Its fine to go green and to do the right thing from a green agenda but certainly don’t ignore the regulatory issues associated with corporate and social responsibilities.

Moving on to Procurement, obviously cost as ever is a very critical aspect in determining policies of companies. More and more companies are looking to outsource and our advice is you should not, if you are going to outsource, outsource the controls the scheme is all well and good to outsource process in administration but you need to keep control on the policy and you need to keep control over the opportunity to look at opportunities to reduce cost in the business and to provide more environmentally friendly programmes for your employees. A lot of companies have outsourced. If they’ve outsourced then they’ve also outsourced some of the skill sets. So occasionally it’s necessary for companies to take independent advice to look at these issues.

From procurement perspective, the big issue is your buying power. Larger employers have an enormous amount of buying power to bring down on their corporate fleets. Historically companies have provided cars to employees of a general nature to personal contract purchase and personal leasing arrangements which have been very, very unsuccessful to my mind because of the take up has been so poor. Largely because of the difficulties including corporate discounts. But utilising the new QLEC legislation the qualifying low emission cars that has come in from April, it is possible to provide an £8,000 car to an individual for tax cost which is £3 a week. Which is again an amazing statistic. Also if you are looking to provide a wider population of employees with cars, that will increase your buying power and should also feed through to the opportunity that you have to get additional discounts on the rest of your car scheme. You could introduce QLEC or any form of low emission car through a salary sacrifice arrangement whereby employees give up some of their taxable pay and in return for a tax efficient benefit. Or you can do what PwC have as part of our Choices Scheme of flexible benefit scheme.

There is also the position with regard to senior executives. Senior executives have the opportunity to take a lead on the way on which they demonstrate to the business and indeed to the way to the community on the cars they indeed drive. It may be difficult to get some executives out what might be described as their gas guzzlers but more and more senior execs are actually rewarded not just on financial performance but also on the environment and the businesses performance against that but also with employee engagement. A low CO2 emission cars and the driving thereof are a good way of being able to demonstrate that. You may not loose out as a senior executive also the potential to have more than one low CO2 emission car and the concept of actually having a second car for your spouse sounds like a pretty good choice to make. Also from a procurement prospective don’t under estimate the opportunity of having more than one solution for your fleet. You may have drivers who are doing lots and lots of business miles, and the right solution is for them may be something like employee car ownership which Matthew will cover shortly. For your perk driver’s employee car ownership may not be the right solution and there are a range of option you can consider for them. But the issues are to fulfil the business requirements of the stakeholders for full employer expectations do it in a cost effective way that manages risk and also manages the green agenda, but procurement have a very important part to play in all that.

As indeed the view around funding. There are many different ways of funding and again in the Monks survey we looked in detail the range of funny methods that people employ currently. Contract hire is still the most popular for a company car but there is also outright purchase, contract purchase, captive and hire grid leasing and cross border leasing is even available until the VAT rules change in 2010 and for some companies it still may be worth it to consider. You may not of heard of hire leasing or captive leasing and these are ways that you can actually get the benefits the VAT benefits from leasing with a corporate tax benefits of acquiring your fleet. The point is that not all leasing companies have access to these services or indeed these solutions and it’s critical that you as businesses take on board these as opportunities to review the different funding options that are out there in the market place and take independent advice to determine the right solution for your business. That takes us on to HM Revenue and Customs, Matthew.

Thank you Gary. Right, so what’s the latest on car fleet related news from HM Revenue and Customs. The starting point is the employee car ownership schemes for those of you that don’t understand what these are, they are broadly a car replacement schemes whereby transfer of the car is made to the employee on day one. So although it has the feel of a company car it is actually in the name of the individual employee and thereby escaping the scale charge for company cars. Now the Revenue have consulted on these arrangements, I think its clear they haven’t really understood them in the past, and that consultation period seems now to have stopped and that’s the message we are getting through at the moment. What we are finding though and we’re finding this over past few years is that the Revenue will review the implementation of some of these arrangements and where they are no longer in line with the legislation particularly the NIC regulation, then they will try to take tax and NIC from the employer and there have been quite a number of those over the past few years where those liabilities have arisen from employers.

The other point is that HMRC own statistics demonstrate that on average 20 …, the cars that are run on these schemes, these eco schemes are actually 20 grams per kilometre on average higher in terms of output than company cars. So, it’s quite clear as Gary says, now that we’re looking from HMRC perspective at a much more environmental approach then its quite likely that these will stay on HMRC radar. They do still work for certain employers and certain fleets where the miles are… the business miles are higher and the discounts are higher as well. So they will work and it might be you need to split your fleet rather than having a one-size-fits-all. There will be a compliance cost and there will be administration costs.

On the authorise mileage allowance payments this is quite interesting because one of our colleagues was at a presentation by the Revenue today and the spokesperson there was saying that 50% of her correspondence currently is the business mileage rates that can be paid by employers to individuals who use their own vehicles for business mileage and the message clearly is that these should be raised but the message back from HMRC is that they will not be raised until the next budget on the basis that although the price of fuel is going up the other costs of running cars… the vehicle are actually decreasing. I’m not sure if we would actually all agree on that but that is certainly the party line. Some more positive news is that we are expecting at the ending of May an announcement from HMRC in relation to the company car advisory fuel rates which should increase we understand from 1 July. So we’ll have to wait and see on that one.

As Gary said, the capital allowance resume has changed in the last budget, again just to briefly go over this: Two new capital allowance pools from April 2009, 10% down allowance for vehicles over 160 grams per kilometre and 20% for cars at or below 160 grams. Also a disallowed leasing charge is now going to be CO2 related from April 09 and this will apply to cars over 160grams per kilometre and will be 15% of the relevant expenditure. One point that hasn’t necessarily been picked up by all employers is that the capital allowance rate of percentages for writing down allowance have reduced from 25% to 20% this year, i.e. from April 08. So changes in capital allowance position in the last budget mean that now close alignment between the tax position and the employer and the employee based on CO2 emissions. So if one can review the fleet and provide efficient vehicles in an effective tax structure this means that whole life costs would be reduced and there should be cost savings for the employer and the employees. Very quickly, private fuel continues to be a very expensive benefit to provide to employees. By removing this you could actually leave the employees in a no worse off position financially and save the company £750,000 per car per year. So, without going into the details here, if you haven’t already looked at that we would strongly recommend that you do.

Gary, do you want to just cover more on HR. Yes thanks Matthew.

You’ve heard that company cars are a complex equation and an important factor in that is obviously the employee. All surveys demonstrate that company cars remain a really important part of the employee reward package. An interestingly lots of companies still provide cars based on the list price of the car and don’t take into account the whole life costs equations that need to be taken into account to truly get the right value in terms of what you are offering to your employee. Its probably true to say that its very rare for employees these days to leave a company or indeed to join a company purely for the car scheme that’s on offer. But its also clear that if you provide a car to your employees and indeed to their wider family requirements that meets their needs, then it would purely would be differentiator against some of your competition. Interestingly as well, PwC did a survey of graduates and around 87% of graduates indicated that their preference was to work for an employer that shared their own corporate responsibility values and company cars and low CO2 emissions cars are clearly part and parcel of that.

So why should you act now?

Well as Matthew said at the outset. 2008 is a catalyst for all these different changes that are taking place. The tax changes that come into effect from next April and indeed the changes that effected this April. All the regulatory changes that are going to impact on your business from April 08 and the trail leads right to the boardroom in terms of corporate and social responsibility. The environmental agenda is seen in the press is discussed by your employees its discussed by your employer by your customers and its critical that you as an employer take account of those issues and review your existing arrangements, take the views of your employees and review position with your third parties. One final point on the third parties with your leasing companies, you need to also ensure that they’ve taken into account in their costing the impact of the capital allowance changes and understand what it will mean for your pricing going forward.

Any final comments Matthew? Thanks Gary. Yes I think just to conclude then if employers can reduce costs and its not unrealistic in our experience for employers to reduce costs of running their fleets of about 10-15% per annum. But if one can reduce the costs and tick some of the other boxes as Gary says on the environmental and the corporate manslaughter areas, then it absolutely is a win-win scenario. So we would say that you would need to prioritise your options and your objectives, get an independent view on what you’ve already got, collate information about what the market is currently doing in your industry sector or wider than that and perhaps discuss or survey your employees is to what they preciously want and the kind of services that we are providing to our clients at the moment range really from the full service on the whole fleet right down to something which is much more aligned to an MOT and a check and balance, quite a few of our clients want to know that they are not missing a trick to make sure the car fleet they’re running is fit for purpose and so we have flexibility around that.

We’ve just got a few minutes left for questions. The first one is from a Mrs Hull. “Are you going to really swap me for a company car?” Gary I think this is one for you.

Dangerous. “How can I find out about how my car fleet compares in the market. What are the emerging trends?”

Gary, just want to pick up on that one in terms of the Monks. I know you have covered a bit of it already. Yes, I mean Monks is an interesting survey as far as it provides a lot of data and an increasing amount of data this year on the environmental agenda and CSR generally. But also it gives you a lot of data around cash allowances, what is current in the market place, the types of car that people drive, the criteria at which people qualify for cars and typical cars and particular grades, and its quite useful as well to look at it by a sector by sector basis because we do have access to that sort of information. We also have wider information outside the UK, if companies want to look at their comparisons with other organisations globally and this is one of our publications international fleet guide, one that we contribute to in addition to things like Monks.

“How can I measure the profitability of my car fleet?”

Perhaps that’s not quite the right wording. Perhaps its how to measure the cost of the car fleet. On measuring the cost of the car fleet that certainly would be a major part of the reviews we would be carrying out for clients. The way we normally do this is either on a sample basis of representative vehicles or by actually modelling the whole fleets itself. So clearly its very important that one can not lose sight of the wider issues and we take a holistic approach but to get that financial data and as Gary says, the best funding method and the best procurement method that is all covered off we look at the alternatives there and also to cover off the risks as well. Because if you have low risk profile then you might not want to go into cross border leasing. So one has to look at it holistically.

Gary, “will senior executives realistically move to low CO2 cars.” I think we probably both got experience with this. Do you want to go first?

Yes. There is evidence that some senior executives are moving to low CO2 emission to set the right example and I think that might increase. They may still have their own car that they buy themselves, back at home, hidden away in the garage in shame that they will bring out on special occasions, but there is a real opportunity to provide not just a car for the senior executive but indeed for spouses and children as well.

Yes. That certainly is my experience whereby its not just cut and dry to say no senior executives wont change their way of funding their car, their choice selection. Certainly it is our experience as Gary says these changes are now taking place so I think it is realistic to expect them to move.

Gary There is lots of more of CO2 emission cars that are coming there that are at the executive level.

Matthew Yes. Its interesting your point about the survey and saying that the miles can be covered from the surveys in terms of what we are seeing at the moment and ex collating those up. It was said in Victorian times wasn’t it, that London would disappear under two feet of horse manure with all the horses and horse drawn carriages and clearly technology has changed. So one must be cogniscent to that, but lets go on with the next question which is;

“Can public sector employees benefit from salary sacrifice for cars?”

Again the answer is yes. It will depend on what part of the public sector but we are working with a number of different parts of the public sector at the moment and I think its fair to say actually would you agree Gary? We’re probably a bit cynical at first thinking is this actually going to be what public sector employees want?. Will it work in this sector?.. and in fact some of the take up on some of the arrangements has been really quite high.

It has indeed. The critical issues about ensuring that you looked at the implications for pension and making sure that a reduction in somebody salary is actually legal and authorised by the secretary of state is appropriate. But, given the fact that a lot of people use their own car on business, in the public sector the opportunity to provide low CO2 emission cars in a cost effective way has got to be good for the green agenda and that a real benefit to employees and indeed to their employers.

Matthew Yes. I think quite often we would be asked to help out with the broader issues on company car provision but also that would lead into discussion on green transport and green travel plans which could involve bus travel, bicycle to work scheme………

Gary and we’re looking at car clubs now. How do you make those more cost effective for employers to provide to employees? So we’ll keep thinking of new ideas.

Matthew Yes. Another question. “What has PwC done with its own car fleet in light of the changes?”

Well its interesting I was in a client meeting quite recently where they obviously had done a bit of research on the PwC scheme and was holding it up as a bit of a model example of what they might like to do particularly around the some of the as Gary says, the flex Choices arrangement and salary sacrifice. Won fleet of the year award 2007. Any other points you want to make on that Gary?

Gary Yes.

A bit of clean fleet and…….

Matthew We do indeed. We’ve reduced the incident of accident in our fleet. We’ve reduced the emissions in our fleet and we’ve offered the car opportunity to just about all our employees and the take up is increasing. It’s gone extremely well its very well valued by everybody at PwC I believe.

Certainly the feedback. OK well I think we are nearly out of time now. So just to say thank you very much indeed for listening. A recorded on demand version of this webcast will be available shortly. You have our contact details, of course, if you want to pass any questions through directly to myself or Gary.

Thank you very much indeed.