A number of fleets have already changed or are looking to change the way they fund their vehicles to ensure they’re still getting the best value for money.

The increase in VAT from 17.5% to 20%, a reduction in capital allowances and proposed new accountancy rules are all having an impact.

Doubts have already been raised over the future for employee car ownership (ECO) schemes, with mileages, fuel costs and the administrative burden eroding potential savings (Fleet News, January 7).

However, whether a fleet’s employing an ECO scheme, outright purchase or leasing its vehicles, the continuing backdrop is one of cost reduction.

Therefore, choosing a funding option which takes account of an individual organisation’s own unique set of circumstances, such as vehicle type, mileages driven and tax profile is essential.

A Fleet News poll has revealed that 54% of fleets have changed or are considering changing their funding method.

One respondent revealed what has motivated them to reconsider how they’re funding their fleet. “Funding costs are increasing, but not inline with interest rates,” he said.

“Companies that can afford new vehicles are paying a premium to cover the losses that the banks have made.”
Another said: “Changes to VAT and a shortage of funds is pushing us towards contract hire rather than outright purchase.”

Tusker said that was becoming increasingly commonplace, because for fleet operators which outright purchase their vehicles the increase effectively adds 2.5% to their acquisition costs as the VAT cannot be reclaimed.

Allied to a reduction in capital allowances from 20% to 18% for cars emitting 160g/km of CO2 or less and from 10% to 8% for those emitting more than 160g/km, outright purchase looks increasingly less attractive, says Tusker.

“The impact of changes to the tax regimes affecting company cars is likely to reduce the attractiveness of outright purchase which has been on the wane for some time,” said Tusker managing director David Hosking.

“And, even before the impact of the VAT rises, we have had a record year in terms of contract hire orders, as well as seeing tremendous growth in salary sacrifice cars.”

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