Business Library

Finance your company cars

If your business runs company cars you will know that they are expensive assets. Therefore, getting the provision right can save time and money. There is a relatively simple three-step process that may help you:

policy
funding
management

Policy

When choosing the right vehicles for your business there are some issues you need to take into account:

choice: you need to make sure the car is appropriate to the job grade. Whole life costs, rental value or list price are ways of assessing this. As a benchmark, look at companies in your industry to get an idea of the car that should be offered with particular job grades
the car factor: some companies use cars as a way of attracting and retaining employees. What cars do local recruiters offer in their remuneration package?

You also need to take into account which vehicles are right for your employees. Points to consider include:

tax liability: new rules on personal taxation of company cars come into force in April 2002, moving from a business mileage system to one based on the CO2 emissions of the car. You may need to ensure that the cars you offer enable the employee to minimise their tax liability
usage: if the user is a sales representative doing high mileage, you need to ensure their car will be suitable for this job

Funding

There are many funding options available: hire purchase, contract purchase, contract hire, finance lease, operating lease plus cash allowances for employees to use personal leasing products. Getting your financial objectives agreed will make the choice of funding method easier. Some of the key issues to consider include:

risk: cars depreciate and you have to dispose of them at some stage. Do you want to take on the possible risks or reward associated with this, or would you rather a leasing company did?
balance sheet: whether you want the vehicles to be on or off balance sheet will influence the funding method chosen
control and cost: do you seek fixed costs or are you more concerned with controlling when you change vehicles

Management

Agreeing a car policy and the right funding is only the start. You need to ensure cars are managed throughout their life e.g. repairs, maintenance and breakdowns are taken care of cost effectively. These expenses should also be taken into account when calculating the costs of running company cars.

Action Checklist:

Ensure that the cars you offer are suited to the grade of the employee and the demands of the job
Seek the advice of an accountant to ensure that your chosen method of funding is the most appropriate for your business
Investigate the fleet management options available and ensure that costs are minimised but efficiency maximised

This is a guide. It may be helpful for you to speak to an advisor in leasing and asset finance. E&OE