Car subscriptions represent a novel approach to supplying company vehicles that can prove beneficial for both employers and employees.
A car subscription sits between a lease and a prolonged car rental, allowing you or your employer to pay for a vehicle (or van) for a period ranging from 28 days to 36 months. This arrangement provides the flexibility to secure the exact vehicle you desire, change it as needed (subject to conditions), and includes insurance and maintenance services.
In contrast to a lease, there is no substantial upfront payment requirement, such as a nine-month advance payment. However, the monthly charges are higher compared to a fixed-term lease. Short-term leases, spanning three to 12 months, are also available, albeit with potential limitations on car choices. Importantly, in all instances, neither you nor your employer assumes ownership of the vehicle.
Company Vehicle Subscriptions
Traditionally, employers have managed company car schemes falling into three categories: company-owned vehicles, employee car allowances, or employee salary sacrifice schemes. These are detailed below.
For business owners and fleet managers, car subscriptions offer a means to maintain a flexible fleet that can be easily adjusted without being tethered to multi-year lease cycles. There are no initial costs associated with purchasing a fleet of cars, along with the subsequent expenses of taxing, insuring, and maintaining them. Additionally, subscriptions can enhance job offers, making them more appealing.
Rhys Adams, Director of Cocoon Vehicles in Derby notes “Flexibility is a standard requirement of businesses looking for cars for their employees, subscriptions provide this allowing the company to expand or reduce their fleet with ease. Not ony do they offer lower upfront costs but allows you to return the vehicles without any early termination or storage charges.”
Subscriptions could be extended to contractors on temporary assignments or new staff members in their probationary periods. New businesses, facing financial constraints or lacking a robust credit history, may find it challenging to make significant down payments required for traditional leases. This also holds true for commercial vehicles.
Given the current delays in obtaining new cars (as of 2022), a subscription or flexible short-term contract can address gaps in a vehicle fleet while drivers await specific cars. Subscriptions provide the opportunity to switch between cars and explore different models, a feature not typically offered by traditional leasing.
Most providers permit users to switch between cars and vans, with some offering consolidated invoicing for multiple cars at favorable rates. Depending on the company’s financial structure, VAT can be reclaimed (in accordance with HRMC rules), with the subscription registered in the employer’s name as the agreement is made under the company’s name.
Employee Perspective on Subscriptions
You may be utilising a subscription car—more likely a van—for work purposes. Still, when a company car is available for private use, a Benefit in Kind (BiK) value is calculated based on the car’s value (and fuel if made available for private use). As subscription cars are subject to change, it is the responsibility of the company/employee to inform HRMC about the car the employee is currently using.
Under salary sacrifice, the subscription cost is deducted from your pre-tax salary, resulting in no income tax or national insurance contributions on the sacrificed portion. However, a BiK is still applicable based on the car’s value and the private fuel used.
A traditional company car allowance entails a cash sum added to your salary, allowing you to subscribe to a car of your choice. Tax is levied on this sum as additional salary, not as a BiK. Record-keeping of business mileage versus private mileage is necessary, and a business mileage allowance may be available, or you can claim business mileage against tax at a flat rate if not offered.
Utilising a company car allowance for a subscription could be advantageous based on your employer’s terms. If you anticipate not needing a car for an extended period, such as a month or two working abroad, returning the subscription car and starting fresh upon your return is a viable option. Savings can also be achieved by switching to a more affordable car. However, bear in mind that, as the subscription is in your name, you will be subject to the same conditions as other users, including charges for damage beyond normal wear and tear or excess mileage.
Electric Incentives
Many companies are exploring subscriptions as a means to introduce electric vehicles (EVs) into their fleets, aligning with corporate goals of reducing CO2 emissions. Electric car subscriptions offer a practical way to assess how well these vehicles meet business needs and identify the most suitable models.
There are significant tax benefits for both employers and employees. Users of zero-emission cars incur only a 1% BiK, translating to savings on taxes for both the individual and the employer. However, the feasibility of this tax benefit depends on the individual’s ability to charge the EV at home overnight, especially if living in a flat or lacking off-street parking.
Taking advantage of the 1% BiK, certain electric car providers target both employers and employees. Companies like Mycardirect Ltd provide leases to employers and assist in setting up salary sacrifice schemes, allowing employees to choose their preferred EV.
Conclusion
Businesses can really take advantage of car subscriptions for their fleet requirements nd to keep employees mobile. Flexibility really is the key and with higher than usual staff turnover rates, there has never been a better time to research vehicle subscriptions for your fleet.
