A new web-based company car or cash allowance calculator has been launched by Activa Contracts giving employers and employees in-depth analysis on the critical costs at the click of a button thereby simplifying the decision-making process.
Activa Contracts has developed the simple to use, highly visual and quick to calculate tool in partnership with automotive industry consultancy and tax experts BCF Wessex.
Employer and employee decisions around the financial viability to each party of opting for a company car or taking a cash allowance have been given new significance following the government’s late 2016 Autumn Statement.
From April 2017, employees choosing a company car where a cash alternative is available will be taxed on the greater of the company car benefit or, the cash alternative. However, for arrangements entered into prior to April current rules remain in place up to April 2021.
Activa Contracts’ managing director Ian Hill said: “Following the Autumn Statement it is even more critical that car or cash allowance decisions made by employers and employees are made scientifically.
“All too frequently employers find it very difficult to arrive at a true cash allowance figure and use a broad calculation often crudely linked to a monthly lease rate, but failing to take into account a number of other key factors notably corporation tax relief. Additionally, employees struggle with analysis because they all too often only compare the headline monthly cash figure entitlement and potential company car benefit-in-kind tax bill when other factors also need to be considered.”
Activa Contracts’ new ‘business car toolkit’ builds on BCF Wessex’s award-winning business car software, Gensen. It uses a range of web-based whole life cost calculators and comparators designed to help users to: lease or buy a car, compare a personal lease with contract hire, find a better company car for the same benefit-in-kind tax, understand the ‘true cost’ of a company car and discover the ‘true cost’ of employer-provided fuel for private use.
Using Activa Contracts’ database of more than 8,000 cars, the ‘employer cash allowance calculator’ can be customised according to a monthly cash allowance budget, lease term, annual mileage, payment profile, VAT recovery rate and insurance premium. When calculating the monthly cost of a cash allowance, the gross figure is revised for Class 1 National Insurance payments and Corporation Tax relief. Similarly when calculating the monthly cost of a company car the lease rental, maintenance, insurance and Class 1A National Insurance is taken into account.
Mr Hill said: “Only when all of the costs of the company car have been considered can the equivalent gross cash allowance be calculated so that employer costs remain neutral.”
Switching to the ‘employee cash allowance calculator’ and similarly calculations can be customised taking into account lease term, annual mileage, payment profile, annual business mileage, fuel costs, annual insurance premium and applicable income tax band to set a monthly cash allowance. When selecting cars the tool calculates the monthly gross and net cash allowance required to lease a car taking into account rental, maintenance, tax and National Insurance and compares the figure with the model’s monthly benefit-in-kind tax rate.
Mr Hill said: “Using the personal contract hire cost for an employee’s chosen car, the software calculates the net cash allowance needed to ensure the monthly cost would be the same as the benefit-in-kind tax if the vehicle was a company car. Additionally, the software adds income tax and National Insurance contributions to work out the gross cash allowance an employer would need to pay to enable the employee to afford a personal lease arrangement.”
Furthermore, the tool also calculates the amount of money employees can claim in mileage allowance relief from HM Revenue and Customs if their employer reimburses business mileage at less than the Approved Mileage Allowance Payment rate, which is currently 45p per mile for the first 10,000 business miles and 25p per mile thereafter.
Activa Contracts is a division of the Arnold Clark Group, Europe’s largest independently-owned vehicle dealer group, and sister division, Arnold Clark Vehicle Management, is also using the newly developed tool.
David Rawlings, director of BCF Wessex, said: “We are trying to make complex situations straight-forward and simple for both employers and employees to understand and allow them to use the software to look at many different alternatives and ‘what if’ scenarios.
“We are delighted to be working with both Activa Contracts and Arnold Clark Vehicle Management. The market is changing and both businesses are responding to what customers want.”
Mr Hill said: “The calculator enables employers and employees to make multiple evaluations across every make and model of vehicle to arrive at the optimum cash allowance or company car solution to meet their own individual requirements at the click of a button.
“The ‘business car toolkit’ focuses on the value of a car rather than the headline cost in a highly visual way.
“Many of our customers have a large cash allowance population. Our new calculator will determine whether the right decision has been made on an individual basis.
“We are increasingly discussing car or cash allowance with procurement, finance or HR directors who don’t have specific fleet knowledge and expertise and are crying out for expert advice and guidance. The calculator delivers that information in a quick and visually informative way.”
Activa Contracts continues to hold client benefit roadshows during which it highlights to customers’ company car drivers the tax-efficient benefits of company cars and specifically ultra-low emission vehicles.
Mr Hill said: “Employees driving their own cars on business trips continue to prove to be an administrative and compliance burden for many employers. We believe a company car remains exceptional value for money for both employers and employees and limits organisations’ risk exposure.
“Basing a company car scheme on whole life costs enables companies to deliver a very attractive scheme to employees, which can prove to be a major employee recruitment and retention tool in a competitive labour market.”