Headache? Relax, don’t tax yourself: John Blauth cautions against any knee-jerk reactions over the new tax regime – money management

Headache? Relax, don’t tax yourself: John Blauth cautions against any knee-jerk reactions over the new tax regime – money management – Brief Article

John Blauth

It is normal practice, in the editorial rooms of publications whose subject matter includes company cars, to spend Budget day with ears pressed against wireless sets, eagerly listening to the Chancellor kicking us all, once again, in the fork of the Y where legs meet trunk. Not this year, it seems.

All taxes pertaining to fleets remain unchanged, bar one. If you acquire an electric vehicle or one that produces fewer than 120g/km of C[O.sub.2], you may write down 100% of its value in year one. Also, Vehicle Excise Duty on a low emission car drops by 30 [pounds sterling] (it is now 70 [pounds sterling] for petrol, 80 [pounds sterling] for diesel and 60 [pounds sterling] for LPG or CNG). Sulphur-free fuels will, at some stage in the future, be encouraged by duty incentives but, other than that, nothing, zip, niente, nada.

Except for one thing, of course: if you have a job, your effective level of tax has just gone up by about 3.5p for each quid you earn. If you are an employer, the cost of employing staff has just shot up. But, looking on the bright side, it wasn’t all stealth, confusion and pain-bingo winnings are now exempt from tax!

The new company car tax regime has now been in effect for over four weeks and most company car drivers have received their salary details showing just how much the new tax is costing them. For the high-mileage user–the one who earned a tax discount by racking up the working miles–the effect has tended to be more shocking than for others who spend less time in their cars and who are more on the perk side of the equation.

Senior executives, whose automotive preferences veer towards the large-engined and expensive, will find that they too have been hit hard by the C[O.sub.2]-based tax system.

Inevitably, many fleet and business car drivers will now be inundating websites, financial advisers and HR departments with demands for advice and schemes to opt out of their company cars and buy their own instead. Well, hold hard, is the warning from Singer and Friedland Finance, just one firm offering guidance in this sector.

“People forget very quickly the true costs of running a car,” says Miles Roberts, the firm’s director of sales and marketing.

As a conscientious manager you need to point out to anyone moving in that direction that there are many things to consider–and the main one is cost. Road fund licence, breakdown cover, servicing, maintenance, repairs and, most importantly, insurance are the direct costs that need to be taken into account. The latter will be extremely expensive if someone is proposing to use their car for business as well as personal use. The standard `social, domestic and personal business use’ wording on a policy does not include business use on behalf of a third party–a category which includes one’s employer.

But the biggest cost of all, forgotten because it doesn’t seem to involve a physical cash transfer from the private owner’s pocket to someone else’s, is depreciation.

A brand new car can lose up to 35% of its value in the first year of its life–especially if its mileage is double the national average of 8900 miles per year. That is a massive amount of equity lost. Normally this burden is carried by a company; however, hand a company car back and it will fall onto individual shoulders instead.

From a management point of view, the fewer company cars there are to acquire, run and dispose of, the easier life becomes–in one sense. In another though, the demand for rigorous checking of documents to ensure that the company’s interests are not being compromised by staff who use their own cars for business create a different but proportionate pressure.

Also, and of equal importance, is the freedom that employees now have to buy cars that suit them–making decisions that may possibly be at variance with the needs of the business. If you need your key sales bod to be able to carry clients around, it’s no good him turning up in a whizzy coupe that is only suitable in the back for small children.

Before you–or your drivers–start making hasty decisions, make sure your calculator’s batteries are in peak condition.

COPYRIGHT 2002 DMG World Media Ltd.

COPYRIGHT 2003 Gale Group