Being green doesn’t mean driving small cars – it means being smart.

Being green makes good financial sense. The logic is simple – you and your drivers spend less on fuel and pay less tax.

Yet research reveals that more than a quarter of companies continue to believe it will cost them money to cut carbon emissions, while thousands of others ignore vehicles in their environmental strategies.

From April corporation tax relief on cars will be based on CO2 emissions as the Government continues its strategy of using taxation to influence behaviour.

Whatever your views on this policy, it is clear that the emissions-based tax-ation system for drivers introduced in 2002 influenced manufacturers to develop vehicles that were tax efficient, as well as aspirational.

This article expands on three ways that fleets can reduce costs while increasing benefits by being green.

Selecting the right cars

Over the past few years using wholelife cost has been widely accepted as the sensible way of determining the most cost-effective fleet cars.

But, to get the correct wholelife costs, tax must be included in the calculations.

From April 1 life gets complicated when the corporation tax relief (and the timing of that tax relief) for a company car will be based on its CO2 emissions.

To put it simply, the lower the emissions the quicker the company gets its tax relief:

  • Cars with CO2 emissions below 110g/km will attract a 100% writing down allowance (best position).
  • Cars with CO2 emissions of 111g/km to 160g/km will attract a 20% writing down allowance.
  • Cars with CO2 emissions above 160g/km will attract a 10% writing down allowance (worst position).

Unfortunately this information alone is not enough to enable you make a decision.

If the car is leased, the leasing company will also be affected by these changes and will pass any additional costs or savings on to the customer by adjusting the rentals.

Another complication comes in the form of changes to the expensive car leasing disallowance. From April 1 this will be a flat rate rental restriction of 15% for 161+g/km cars.

Under the old rules (where the restriction was based on retail price), the restriction for such a car with a retail price of £50,000 would have been 38%.

Under the new rules, therefore, 23% more tax relief can be claimed.

Without explaining the maths, cash flows that occur in the future have different values to cash flows that occur now.

So to make wholelife costs worthwhile future cash flows need to be converted to today’s value by using discounted cash flow analysis.

Calculating complete wholelife costs is essential but complicated. Getting expert help to design a car choice policy should be seen as a good investment.

Mileage management

Choosing the right cars will save both the business and drivers money, but educating drivers to reduce miles driven can potentially be the biggest saving of all.

Take a fleet with 20 drivers, driving 15,000 miles a year at an average speed of 35mph.

If they all reduced their business mileage by 10%, their employer would save more than 20 lost working weeks, save 30,000 miles in depreciation, maintenance and repairs, as well as saving about £3,500 in fuel.

That’s a number that would make the most miserable of accountants smile.

Companies which have adopted good reporting systems are seeing business miles fall by up to 20%, largely due to:

  • Post code-based mileage calculations.
  • Drivers and managers questioning whether driving is the most cost-effective solution.
  • Adopting new, cheaper technologies such as video-conferencing.

Salesmen rarely quote “love of administration” on job applications, but if you can utilise a mileage recording system that is quick and easy to use, supported with good effective management, miracles sometimes happen.

Increasing fleet size

Thirty years ago, the concept of the perk car and the second company car came about due to high levels of personal taxation and low tax on benefits; these conditions are similar to today’s position for the greenest cars.

So introducing more cars to your vehicle fleet can be a great win-win reward strategy, as employees who pay tax at 40% on income could now pay as little as 10% benefit-in-kind.

Although it takes some careful HR consideration, some of our clients are now reducing costs and increasing benefits by:

  • Offering a second, or even third car instead of a salary increase.
  • Moving some perk car drivers who took cash allowances back into the car scheme.
  • Introducing a company car salary sacrifice plan into flexible benefit programmes.

Finally, to make a green car policy work employees (and often management) need to be convinced that savings are real, and that green cars aren’t small and slow.

Spending time producing good communication and increasing awareness is the key (and it helps if the chairman can be persuaded to sometimes leave the Bentley at home).

Just remember that a green fleet makes sense!

10-point benchmark

  1. Promote cars with low CO2 emissions to reduce employee and employer car tax, employer National Insurance and fuel costs.
  2. Evaluate alternative fuel cars to see if they might benefit your fleet.
  3. Ensure vehicles are regularly serviced – poorly maintained vehicles have higher toxic emissions and fuel consumption.
  4. Identify opportunities to reduce mileage by recording and analysing business travel.
  5. Record and analyse individual fuel consumption to encourage fuel-efficient driving.
  6. Promote safe, economic and environmentally-friendly driver training.
  7. Ensure mileage reimbursement rates are environmentally sensitive and do not encourage drivers to make excessive journeys.
  8. Provide access to websites and route planners to minimise vehicle mileage.
  9. Promote satellite navigation and telematics to help drivers avoid congestion and use the most efficient route to reach their destination.
  10. Evaluate conference calls and tele/web/video conferencing as an alternative to business travel.