Being able to offer your employees perks of the job that boost their morale and allow them to focus on what they do best is what a company car program is all about. Many employees will tell you that it shows them they are being valued and that the company is putting trust in them. The only problem is figuring out the most cost-effective way to offer a company car, both for the business and the employee. 

How do you define a company car? 

A company car is any vehicle supplied by the employer to the employee for business purposes. Some agreements may also include a percentage of time or mileage that can be put towards personal use, but this is at the discretion of the employer. The company car serves as both a benefit and a job tool, and the employer will typically own or lease it. Having a company car can help project a certain image, for example, for travelling salespeople who want to make the right first impression. 

Do employees pay towards a company car?

There is a common misconception amongst employees that a company car is just a free car paid for by work. Because of the nature of the agreement, employees will have to pay a BIK tax (Benefit-In-Kind) to account for the fact that they have access to the vehicle. The precise amount will depend on the type of car.

How is company car tax calculated?

The company car tax calculation is actually rather simple to follow and only includes a few main factors. The first is the car’s value as stated by the P11D, with more expensive cars generally having to pay more company car tax. The second is the level of CO2 emissions, with higher emissions meaning a higher rate of tax. And lastly, the fuel type is also factored into the equation, with petrol and diesel models paying more tax than their electric counterparts. 

When should you switch to electric?

More and more businesses are looking to make the switch to electric to help reduce their environmental impact and to make use of efficient new technology. The government fully supports this shift and therefore only imposes the very lowest tax rates on fully electric vehicles. While hybrids can save on tax, electric vehicles offer the lowest rates across all makes and models in the UK. If you are looking to make the proposition more tempting for your employees, showing them the tax savings of an electric vehicle can help you make a very convincing case. 

Tax relief on electric vehicles 

If you choose to buy an electric vehicle outright, or via a hire purchase agreement, you will be given 100% tax relief in the first year. While this is certainly an eye-catching policy, it does miss a key point. Owning a vehicle means that you put an asset onto your balance sheet that will immediately start to depreciate. Within 2-3 years, the value of the vehicle will generally be 40-50% less than the purchase value, irrespective of mileage, wear and tear, and service history. This is why businesses are increasingly looking at a far more flexible approach that doesn’t tie them to a low-value asset that is hard to sell on. 

A smarter way to go electric 

Options such as Tesla Model 3 leasing allow you to offer the very latest vehicles to your employees without any of the headaches of ownership. A monthly fee is paid to the leasing company, effectively renting the car for the duration of the term in the agreement. Once the agreement comes to an end, you simply return the vehicle in the agreed condition and start over again with a clean slate. 

Critics of leasing will tell you that you are giving money away to the owner of the vehicle (in this case, the leasing company) in much the same way that a renter does to a landlord. The problem with this comparison is that while a house appreciates over time, vehicles quickly lose their value and become worth nothing. This is why leasing an electric vehicle is the solution when you want to offer a company car program that offers value to everyone involved. 

Conclusion 

Speaking with a UK leader in electric car leasing will allow you to see what you can offer your employees for your budget. That way, you will be able to create a program that works for both sides as you scale your business the smart way.