Car subscriptions offer a new way to provide company cars that can work well for both employers and employees.
A car subscription is halfway between a leasing and a long-term rental. You or your employer can pay for a car (or a van) from 28 days to 36 months, with the possibility of getting exactly the car you want, changing it whenever you want – under conditions – and having insurance and an interview included.
Unlike a lease, there are no significant upfront costs (like a nine-month prepayment), but monthly fees are higher than a fixed-term lease. Short-term rentals are also offered – between three and 12 months – but the choice of car can be limited. Either way, neither you nor your employer owns the car or will have the ability to do so.
Vehicle subscriptions for employers
Traditionally, employers have implemented company car programs which fall into three types; company-owned vehicles, employee car allowances or employee wage sacrifice program. We explain them here.
For business owners and fleet managers, the use of car subscriptions is suggested as a way to have a flexible fleet of vehicles that can be quickly scaled up or down without being tied to multi-year rental cycles. . There are no “start-up” costs to buy a fleet of cars and then tax, insure and maintain them. You can also use them to make a job posting more attractive.
“The modern world of work has changed dramatically over the past two years,” says Duncan Chumley, Managing Director of our partner, Mycardirect. “A car/van subscription gives your business the ability to change with it. Car Subscription offers short-term contracts that can be canceled at any time, so if your business is disrupted by outside forces, you’re not stuck with a fleet of dust-gathering, unused and unwanted company vehicles. .
Subscriptions could be offered to contractors on temporary contracts or to new employees still on a trial period. New businesses may not be able to pay large down payments at the start of a traditional lease and may not yet have a good credit history. This also applies to commercial vehicles.
Now, with current new car delays (2022), a flexible short-term subscription or contract can cover shortages in a fleet of vehicles while drivers wait for a particular car to arrive. Subscriptions offer the possibility of changing cars and trying out different models, which traditional leasing cannot offer.
Most providers allow you to switch between cars and vans and some can be set up to handle business user subscriptions with, for example, one bill for multi-car subscriptions and great rates. Depending on the financial structure of the company, they can reclaim VAT (as per HRMC rules), that’s why the subscription is in the name of the employer as the agreement is underwritten in the name of the company.
Subscriptions from the employee’s perspective
You may be driving a subscription car – or more likely a van – just for work, but when a company car is made available for an employee’s private use, a benefit-in-kind value (BiK) is calculated in relation to the value of the car (and the fuel if this is also made available for private use). As subscription cars are subject to change, like any company car, it is up to the company/employee to inform RHMC of the car the employee is driving.
Below wage sacrifice the cost of the subscription is deducted from your pre-tax salary. You pay no income tax or national insurance contributions on the part of your salary that you have “sacrificed”. You always pay a BiK based on the value of the car and the private fuel it uses
The traditional company car allowance is a cash sum which is added to your salary, to subscribe to a car of your choice. You pay tax as extra pay, not as BiK, although you must keep your own business mileage records versus private mileage. A business mileage allowance may be available additionally or, if not available, you can claim business mileage yourself against taxes at a flat rate.
Using a company car allowance to purchase a subscription could be to your advantage, depending on the conditions set by your employer. If you don’t need a car for an extended period, such as a month or two abroad, you can return the subscription car and start over with a new one when you return. You can also save your allowance by changing to a cheaper car if that suits you. Remember, however, that since the subscription is in your name, you will be subject to the same conditions as other users, such as damages above normal wear and tear or excess mileage.
electric incentive
Most companies are looking at subscriptions as a way to introduce electric vehicles (EVs) into their fleet. They may have corporate policies on reducing CO2 emissions and an electric car subscription provides the opportunity to try out how they match business needs and the best vehicles for the job.
There is a big tax advantage for both parties. Zero-emission car users pay only 1% BiK. This means that if you have a car included in your role, you and your employer can save money on taxes. However, the tax benefit may be questionable if you have no way to charge at home overnight because you live in an apartment or don’t have off-street parking.
Taking advantage of the 1% BiK, some electric car suppliers are targeting both employers and employees. Octopus Electric Vehicles provides leases to employers – and helps them set up wage sacrifice plans – and the employee then chooses the car.
As an example of an EV subscription, electricity-only provider Onto has a wage sacrifice calculator. Calculated at the start of April 2022, on a subscription for a Hyundai Ioniq Premium 38kwh (list price £33,895) an employee earning £40,000 had the (employer paid) monthly subscription of £499 deducted from their gross salary (wage sacrifice ) . There is a tax and National Insurance saving of £166, leaving a monthly BiK of £11.
start here
If you are thinking of a subscription for your next company car, our sales partners can offer you a lot.
