Accountancy firm KMPG has warned that the cost to employers of increased taxes and PRSI contributions on Benefits in Kind (BIK) from January 1st may bring an end to the company car.
The Finance Bill 2003 raises the tax on the original market value of company cars from 22.5 per cent to 30 per cent, with overall tax and PRSI levy rising from 42 per cent to 44 per cent.
The result will be an increased cost to a firm on a car valued at €30,000 of €2,092, a cost many will be unwilling to sustain, according to Ray McKenna, KMPG's director of human capital. "While companies needing fleets will undoubtedly pay the new taxes," he says, "it's likely that in firms where a car is offered as a perk many employers are going to be looking at car fleets to see if they are really a viable option. It's likely that in cases where cars are non-essential, companies will be looking at offering cash-for-cars."
In anticipation of the increased tax/PRSI contributions, one Dublin-based fleet management service has developed a new financial product that will bypass the increased charges. Open-Book Fleet Service is offering companies the option of Personal Contract Purchase (PCP), a system whereby an individual is given cash to lease a vehicle for a set period at a fixed monthly charge.
The normal contract is three years. After that the company driver can either return the car, or to pay optional residual value of the vehicle and buy it outright. The monthly charge is governed by the initial cost of the vehicle, mileage covered, the period of the agreement and the estimated value of the vehicle at the end of the contract.
Essentially, because PCP is a contract between the fleet management service and the driver, the car does not become liable for PRSI or BIK. According to Shane Teskey, founder of Open-Book, PCPs as a method of financing company fleets are becoming increasingly popular in Britain. "As we approach the fourth quarter of 2003, finance managers involved in allocating budgets for 2004 have begun to examine their requirements for reducing overall expenditure," Teskey says.
"Within the past few months it has become clear that many employers simply don't know where they stand when it comes to company car policy."
The advantage for the company is that the day-to-day management of their corporate fleet has been abolished and PRSI implications rendered non-applicable.
However, while PCPs may be a worthwhile consideration for company car drivers who travel less than 15,000 miles a year, Mr Conor Kelly, managing director of Merrion Fleet Management, says firms should carefully consider options before opting for PCPs.
In Britain, he says, where PCPs have been available for a number of years, many companies that offered "quick-fix" cash-for-car schemes initially are now going back to fleet management companies looking to revise contracts.
"There are undoubtedly some very serious advantages to PCPs," Kelly said. "The first is that the car is taken off the company books; the second that the employee can pick the car he/she wants to drive.
"The disadvantage is that the company ultimately loses control of the car even though it still has duty of care obligations."
There are no guarantees, for example, that the employee has taken out adequate business insurance, or that the car has been adequately serviced and is safe to drive.
Neither, he says, are there any guarantees that the car chosen by the driver is covered by an adequate warranty, leading to expensive repairs which, can come back to the company as increased cash payouts.
Open-Book says it has these problems covered by offering a maintenance package to meets all obligations for scheduled servicing as well as insurance scheme that recognises the employees driving record with previous company vehicles.