Cutting costs

The Costs Compendium

The Very Best Of Cutting Costs



1. Introduction – Getting More from Less

We shall take an in-depth look at reducing company car costs from different perspectives such as the company vehicles, the grey fleet, the drivers, fuel, the journeys, insurance and taxation. One of our aims is to show you how you can cut running costs by up to a quarter.

By looking closely at the costs we shall discover how buying a brand new car can be cheaper than buying a used one.

To implement cost cutting, you need the support of your drivers. When you are not around, they can still save you money, by the way company vehicles are being driven or how they organise and plan their day. Do not underestimate the savings that can be made by taking this detailed approach to costs.

Setting the scene

To begin with, you will need a written car policy, preferably with a handbook to communicate your message to your drivers. Use environmental arguments, as well as cost cutting initiatives, to keep everyone on board. A carrot and stick approach usually seems to work better. If you don’t have a car policy or know where to start, give us a call.

Secondly, if you do not have fuel cards, invest in them, even without a fuel discount, they are invaluable in providing you with information which will help to reduce your costs. If you already use the cards, make sure you receive suitable reports, to allow you to check on individual vehicles. Businesses that actively monitor and manage the fuel used by their vehicles can typically reduce the fuel consumption of their fleet by 10 per cent. Most do not bother.

We shall look at the costs of employees using their own car for company business (the ‘grey fleet’) and identify the break even point at which hiring a vehicle for the day becomes a more cost-effective option.

We shall also look at purchasing policies, what types of car to purchase, whether there may be financial advantages to choosing certain models or the benefits in choosing from a wider range.

Then, there is the question of funding a vehicle fleet. What are the advantages and disadvantages of the various options? At the same time, we shall look at the replacement policy, whether it is cost efficient to replace the vehicle after a certain number of years or at a specific mileage.

The aim should always be to have a vehicle fleet that is well managed, cost effective, energy efficient and safe.

The Vehicle

  1. Low emissions equal lower whole life costs.
  2. Combination of low CO2 and diesel mean the tax burden can be 50% less than petrol.
  3. Consider setting a CO2 limit to reduce your tax liability.
  4. Wheel misalignment could lead to a loss of 10% fuel efficiency.

The Driver

It is estimated 8 days could be saved per year by thoughtful planning. Efficient driving techniques can cut running costs by an average of 15%. Identify wasteful drivers by using fuel card records. Consider removing or trading off, free personal fuel, it can be expensive for both the company and the driver.

2. Looking at the Big Costs

We are going to identify the significant costs, where the biggest savings can be made.

A. Vehicle Policy

Along with funding, this has a biggest impact on your total fleet costs. However, it is an emotive subject amongst staff, but considerable savings can be made here.

It is important to look at who in the company is eligible for a company car. Is the vehicle provided to enable the employee to carry out their job or is it a ‘perk’? If it is solely a ‘perk’ vehicle decide if the company would be better off financially if it brought an end to the benefit by ‘buying it out’.

If this is a bridge too far or would create ill will, consider encouraging
such drivers to go for more fuel efficient cars, namely low CO2 diesel cars. The
drivers can be encouraged by emphasising the ‘green credentials’.

Where the vehicle is for business use (job need employees), can a smaller or less powerful version still do the job? Most manufacturers are now bringing smaller engine cars which still have the brake horsepower of the larger engines. The important thing is they use considerably less fuel and generate tax savings

Again, major savings are to be made from vehicles with lower CO2 emissions. It is not just the lower fuel costs. Your business incurs lower Class 1 NIC costs and lower road fund licence charges (road tax). Everyone wins, as drivers pay less benefit in kind taxation and the company shows itself to be environmentally responsible.

If there is employee resistance to any changes in this direction it may be worthwhile to consider a one-off financial incentive to take smaller, low CO2 vehicles. One in three companies now has a CO2 limit on vehicle choice.

Consider whether to have a restrictive choice by manufacturer across the fleet. Most manufacturers offer either extra discount for a solus policy or for a set number of vehicles. Such discounts can be taken off invoice if the company pays cash and owns its vehicles or payable to the funder of choice resulting in lower rentals. In the latter case, if you wish us to approach a manufacturer on your behalf, contact us

However, employee morale has to be considered once more. Flexibility of vehicle choice is ranked highly by employees in company car policy surveys.

Even when you have picked a model range with a manufacturer, select the best in the class when it comes to running costs. For a BMW 320d Efficient Dynamics saloon now has CO2 emissions of 109 g/km and a combined mpg of 68.9. Our quoting systems contain this sort of information, just ask.

Many organisations run their vehicle fleets over a 3 or 4 year period. If you renew your vehicles every 2 or 3 years, consider extending this by 12 months to save costs.

Likewise, if the company’s vehicles are contract hired or leased, a potential area for cost saving is to consider extending the new contract period even for six months, say to 42 months, to take advantage of potentially lower average annual contract rentals from a longer period of hire, the saving in lower depreciation charges is likely to outweigh increases in maintenance charges.

Although, existing contracts can be extended for six or twelve months, sometimes with a reduction in rental, it may not always be the most prudent option as the potential new replacement with lower CO2 emissions may far cheaper to run in a straight comparison.

Finally, remember low CO2 = diesel = low miles per gallon (mpg) and reduced costs all round. Whenever you approach us to work out a leasing or contract hire rental, always ask us for the mpg at the same time.

Reviewing Your Vehicle Policy It is important to maximize contract efficiency when reviewing your vehicle policy. By finding the most effective combination of contract term and mileage you can maximize the residual value of your vehicles, whilst minimising your maintenance budgets, delivering cost savings.

B. Vehicle Funding

electing the most suitable funding method for your business can achieve cash flow benefits and reduce your finance costs. Purchasing your vehicles outright means an upfront, high outlay of capital. It may require tying up funds that could be used elsewhere in the business or using precious bank overdraft or loans to cover the costs.

Most of the time, spreading the cash flows over the vehicle term can be financially beneficial allowing more efficient use of capital for core investment projects. Funding products such as contract hire or contract purchase provide an even spread of monthly repayments. Vehicles owned outright are a depreciating asset exposing you to fluctuating residual values.

It is most important to consider the tax implications when considering or reviewing your funding method. Cars purchased outright for a business are not VAT recoverable unless it can be proved they will never be used for private use.

However, contract hire and leasing companies purchasing cars, are able to recover the VAT as cars will be used by them for business purposes. Their customers pay VAT on the finance element of the rental but can claim back 50% of this cost.

In April 2009 the rules on leasing disallowances changed. Historically there was an expensive car disallowance for vehicles over £12,000. This has now been revised and the tax rules support the Government’s desire to encourage the use of environmentally friendly vehicles.

Tax relief for business expenditure on cars is now based on CO2 emissions. These changes took effect on 1 April 2009 for corporation tax and on 6 April 2009 for income tax. You will need to group your vehicles into pools depending on their emissions. You should consider reviewing your fleet mix and car policy to make sure they are aligned to the new tax rules.

If you buy a new car for your business that has CO2 emissions of 110 grams or less per kilometre (g/km) driven, or is electric, you can qualify for a 100 per cent first-year capital allowance. This allows you to offset the whole cost of the investment against taxable profits in the year you make the purchase until 31 March 2013.

Cars with CO2 emissions of less than 160g/km qualify for 20 per cent capital allowances in the main rate pool. Cars with CO2 emissions over 160g/km qualify for 10 per cent capital allowances in the special rate pool.

As a result, the majority of businesses could benefit from significant cost savings by moving away from outright purchase to a leasing arrangement.

Funding For The Bigger Business If your internal rate of return (IRR) for investment decision making is around 6% or greater then it would make financial sense to run some discounted cash flows to assess the most appropriate funding approach, taking into account your VAT recovery and effective corporation tax rates.

C. Fuel

The cost of fuel in the UK is a highly emotive subject as the pump prices increase and company fuel budgets grow year on year. Interestingly fuel cost is seen by many as an inevitable expense and therefore often poorly managed. This is surprising as typically fuel is at least 25% of the total operational cost of a vehicle with depreciation usually being the only greater cost.

Diesel is now by far the preferred fuel type, represented in 86% of fleets (compared to 50% for petrol). A relatively ‘green’ diesel car can produce a tax burden 50% less than that incurred by a petrol equivalent. Low CO2 emissions coupled with diesel engines can result in dramatic increases in miles per gallon, helping to cancel out increases in the pump price. As a result, one in three companies now has a CO2 limit on vehicle choice.

Fuel Cards

Fuel cards are a popular and effective way of managing fuel purchases, which for many fleets can amount to a huge number of very small transactions per month. The fuel card provides a robust method of managing these frequent transactions via central billing. The fuel cards have the option to limit purchases (e.g. restrict those with diesel cars to purchase only diesel fuel) and reduce the potential for abuse. At present, only 40% of employers are either considering such a scheme or have implemented one although the figure is expected to rise during 2012.

The cards enable you to monitor accurately how much you are spending on fuel and where and when your drivers are filling up. Detailed fuel reports can also be obtained to help analyse both an individual vehicle’s fuel economy and consumption and that of the fleet overall.

This information is extremely powerful and can be used to identify high efficiency vehicles, poorly performing vehicles and those employees who are underperforming against expected fuel economy levels. The reports can be made bespoke just for your organisation and are an accurate way of monitoring fuel used in relation to miles driven.

As discussed above, the data that a fuel card system provides enables you to monitor expenditure and identify those drivers who appear to be using more fuel than would be expected. These drivers can then be targeted to find out why their fuel use is high and steps can be taken to reduce this.

Businesses should consider rewarding low fuel users and putting measures in place to lower the fuel consumption of those with higher than expected fuel use. Fuel card invoices are approved by HMRC for tax purposes so there is no need to collect receipts.

Fuel cards can also be used to detect fraud, for example drivers who are apparently filling up with more fuel than they could have used or filling up vehicles that are not part of your fleet. In addition, fuel cards can also be used to identify drivers filling up with premium fuels.

All the large filling station operators such as Shell and BP run card schemes offering fleet drivers pump price discounts. There is also the broader retail fuel cards, such as the Webcars fuel card operated by AllStar, which does not offer a saving at the pump but is less restrictive as it is accepted at the majority of garages rather than at just one chain. Its major benefit is that employees do not have to carry credit cards or cash; and data is more comprehensive and easier to monitor for tax purposes.

Another approach is that of independent agent Fuel Card Services (FCS), which buys fuel in bulk and sells it at a discount to businesses, which then know how much they will pay at the pumps over the next week. The cards provide savings of between 3p and 4p per litre and the price agreed is valid at motorway service stations too, where the cost of fuel can be higher.

Journey planning

While a lot of emphasis is put on finding the most fuel efficient vehicles or driving down fuel consumption, it is often just assumed that all the journeys made are essential. There are many ways in which the number of journeys made each year by your fleet can be reduced which will ultimately save money by reducing fuel consumption but also by reducing wear and tear on the vehicles so reducing costs in other areas including servicing and tyres.

Driver Training

Driver behaviour has real impact on fuel consumption. Studies have shown that the average driver reduces fuel consumption by over 10% following fuel efficient driver training. Training drivers can be a quick and easy way to see an immediate decline in fuel consumption without having to spend any money upgrading to the most efficient vehicles. By using the information available from the fuel cards, you can monitor the effects of your training and offer incentives or prizes for the drivers who make the most progress in reducing fuel consumption.

Even businesses with just a few company vehicles can save a substantial amount of money by focusing on individual driver’s performance in this area.

The Diminishing Benefit of Free Fuel for Private Use.

Many employers have actively removed the benefit of free private fuel and the following are methods that can be used to remove the benefit. It is important to consider the potential cost saving against the impact on the employees’ benefits, and therefore determine the most suitable method to be adopted. However, if you are serious about reducing your fuel costs, this particular nettle has to be grasped as typically the private fuel element will cost you between £1,000 and £2,000 per driver per year.

Here are some of your options.

Voluntary surrender of free fuel – A communication programme, outlining the cost impact to employees will often encourage a significant number to opt out of their own accord.

Exclude new starters – The removal of the benefit to all new starters is a simple method, however its effectiveness is dependent on staff turnover and hence can take time. There will often be a ‘hard core’ of long service employees who will remain untouched by the new starter policy.

Buy out – Buying out private fuel for existing employees can be very effective. This will usually be a one-off, non-pensionable payment. Setting the payment level is an important consideration, in order to ensure that employees deem it fair. However consideration of the tax cost of free fuel to the employee often means the buy out does not have to be a very significant sum.

Withdrawal of free fuel – A further option is to identify a future date beyond which no employees will receive free fuel for private use. This will potentially achieve the greatest cost saving (albeit the benefit is deferred), but may be seen by employees as an erosion of benefits and result in staff dissatisfaction.

Monitoring and Managing Fuel.

The techniques and maths behind managing fuel costs are extremely simple, however it is the large volume of data, and the accurate collection of the data that often proves to be the problem.

The following provide some key elements of fuel management:

Ongoing fuel monitoring – it is important to collect data on every mile, every litre and every pound spent for all vehicles on the fleet. This requires robust administrative systems and focused management, and is where fuel cards can bring added value.

Exception reporting – for larger fleets consider exception reports analysing the best and worst 5% – 10% of the fleet. If you can understand why the best employees are cost effective then you can target the worst employees to obtain best of breed results. This gives maximum benefit for least effort.

Spot checks of fuel data – this will demonstrate to your employees that you are taking fuel costs seriously and are monitoring them, which on its own can yield cost savings.

Frequency and volumes of refueling – unfortunately fraud can be common with fuel, so look for refuelling irregularities such as an individual vehicle taking on more fuel at any one refuelling event than the vehicle can physically hold. This could indicate filling two cars at once or filling spare fuel canisters, jet skis, boats, etc. Also consider the frequency of refuelling, as again partners’ cars can often be refuelled on a company fuel card if no one checks fuel reports.

There are a number of fuel consumption monitoring techniques that can be used to assess individual vehicles and drivers:

Against peers in similar vehicles – If there are a number of similar vehicles carrying out similar roles compare fuel economy performance and target the least efficient for improvement.

Against manufacturer’s official fuel consumption figures – Compare the actual fuel economy performance of individual cars against the manufacturer’s official combined fuel economy figures.

The Energy Saving Trust has calculated the average vehicle is about 15% less fuel efficient in actual daily use than the official fuel economy figures. This can provide an indication of how well your vehicles and drivers are performing.

Against peers in different vehicles but similar roles – This can be used to identify the most fuel efficient vehicle make and model for a specific role as long as you are confident that the drivers’ efficiency levels are similar. It should, however, be appreciated that when comparing light commercial vehicles’ fuel economy, careful attention is given to the individual vehicle’s load patterns as the vehicle’s gross weight will have a marked effect on fuel economy.

Some General Rules for Drivers

Make sure that your company car policy document includes details on which journeys will be reimbursed and which will not. Ensure that all your employees know about fuel management and how to ensure the best possible fuel economy.

Make sure your employees are planning their journeys efficiently. Satnavs and online journey planners can make sure that they are travelling the minimum distance possible.

Remind your drivers on a regular basis to check and maintain the correct tyre pressures. It will make a noticeable difference to fuel consumption. Encourage your drivers to keep weight out of the car, it saves fuel. Check the car boots from time to time, stuff just gets left there.

Telephone or video conferencing is an efficient time management tool which saves fuel as staff are freed up from the need to spend time travelling in order to attend meetings.

Fuel is a very significant element of the cost of running a vehicle and needs careful management. It is one of the few fleet cost areas where savings can be almost immediate, and with the cost of fuel predicted to continue to increase, there has never been a better time to focus on fuel.

Hybrid Vehicles

Hybrid vehicles are a combination of a conventional diesel or petrol engine with electric power. They offer greater fuel efficiency than conventional diesel or petrol engines by collecting and reusing energy that would normally go to waste. They are widely available and, due to their fuel efficiency, attract lower road fund licence and benefit in kind tax as well as lower fuel bills, so are growing in popularity as the choice of models grows.

Electric Vehicles

Electric vehicles are carbon neutral which means they are not subject to excise duty or congestion charging. Electric vehicles have a limited range before they must be recharged and they are not suitable for long-distance motorway travel, making them unsuitable for many fleets.

3. Whole Life Cost (WLC) – Doing the Sums

Whole Life Cost (WLC) is a financial model to help show the true full cost of running a vehicle, incorporating all costs rather than just monthly rentals. There are many elements to running a vehicle and by taking them all into consideration you are able to make better and more cost efficient choices for your fleet.

It is not just for the large fleets either, even if you need to replace just the one company car, WLC can show you the cheapest rental option might not be the wisest choice.

Whole Life Cost came into sharper focus when the capital allowance changes made it more cost effective to choose vehicles below 160g/km. Invariably, businesses that use WLC to choose vehicles in their company car policy will end up with Diesel, Low CO2 and high MPG models. Not necessarily the cheapest ‘on the road’ price or cheapest contract monthly rental.

Whole Life Cost Includes:

  1. Monthly rental – reflecting changes in Road Fund Licence and CO2 based Capital Allowances
  2. Disallowable VAT – allowing your business to take advantage of your true VAT position
  3. Fuel costs – in addition to options for fuel and diesel costs, we can customise fuel costs based on your pence per mile rate, as well as separating business and private mileage
  4. Employers National Insurance Contribution
  5. Vehicle insurance – costs can be included
  6. Lease rental restriction – CO2 based allowances can be factored into WLC based on the Corporation Tax rate of your business
  7. Fleet Administration fee – to help recognise the administration of your fleet within monthly rentals
  8. Your own additional manufacturer support

What are the benefits of Whole Life Cost Analysis?

Traditionally businesses have worked to reduce their fleet costs by restricting vehicle choice, negotiating better terms with their supplier or manufacturers or using a raft of suppliers and opting for the provider that offers the cheapest monthly rental for each vehicle they require.

These methods can generate initial benefits but, over time, these are eroded away and can result in other issues such as a complicated network of fleet suppliers to manage or a negative impact on staff motivation through an increasingly restricted policy or introduction of lower status vehicles.

With our help you can now look beyond the monthly rental figure in order to generate long-term cost savings through whole life cost benchmarking.

In a whole life cost approach, drivers are often given a higher monthly allowance as this budget takes into account the true running costs, not just the monthly rental. Your drivers can then choose any allowable vehicle with a whole life cost up to this figure.

Alternatively, allowable vehicles can be divided into bands with drivers able to choose any vehicle within their band. We can build tolerances into the vehicle list to ensure that vehicles remain within agreed bands. Where required, the vehicle cost can be hidden so drivers see only the vehicles to which they are entitled.

WLC is really effective because you will understand the true cost of operating a particular vehicle. Therefore, a well informed business can make considerable savings by managing the whole life costs of their vehicles.

The adoption of WLC for your quotations can provide the opportunity to review cash allowances for vehicles, or even include vehicles that you may have thought were not suitable. This can help bring cash takers back into the fleet helping you improve your work-related road safety exposure.

Because WLC gives you a fuller picture of the costs associated with running a fleet, we can offer a customised view of your fleet to help you review your current policies and/or vehicle choices.

WLC goes beyond the basic cost of funding vehicles by taking into account operating costs such as fuel, National Insurance Contributions (NIC) and vehicle insurance. It also takes into consideration any available Tax allowances.

It means that you take all the factors into account. National Insurance is often ignored if you do not use WLC. Fuel is a huge component of the cost of vehicles and should ideally be reflected when setting policy. It is often invisible to the fleet manager, rarely featuring in fleet budgets.

If you take everything into account the employee and the company benefit.

If your car policy does not incorporate wholelife costs there is a risk that your fleet will not operate as economically as it could, as staff will not select the most efficient vehicles. Often a vehicle with higher funding costs may be the more cost-effective option over the life of the contract, when viewed on a WLC basis.

The Contra Argument

Working to a whole life cost model may challenge your existing fleet policy. Following an in-depth cost analysis, drivers may be able to choose higher status vehicles that are currently outside of their monthly rental allowance.

Using WLC instead of just a monthly rental or a cash price may make some people uncomfortable with the fact that a premium car with very effective wholelife costs, say a BMW 3 Series may end up in a lower band than they would like. It can send out the wrong status signals to employees. It is a very English phenomenon, but not to be dismissed when the emotion of company cars is affected.

So using Whole Life Costs may not fit with the car policy. Indeed, not all fleet managers are convinced. It is not the only tool you can use, there are, after all, many different ways of setting your choice list. The most common approach is using rental bands, either basic rental or effective rental (which includes non-recoverable VAT). Also a car cash price can be used, either a list price, P11D Price or an ‘on the road’, OTR price.

Fleet managers who are supporters of these approaches claim they have an advantages over WLC because they are fixed whilst WLC’s include values which change over the useful life of the asset. Examples are fuel costs and NIC rates.

WLC supporters say all costs can fluctuate, it reflects real life. You can build parameters in when you are using wholelife
costs. For instance you could choose to include an additional factor in your
calculations to take account of future increases in fuel prices. Particularly
prudent in these times.   Fleet managers just have to decide what
works best for them. The main thing is to be consistent and to have an approach
that you can measure against.   We are committed to delivering savings
for our customers through Whole Life Cost analysis.

4. The Drivers – Encourage Responsibility

When embarking on cutting your company car costs, it is imperative to keep the drivers onside. If they are of the same mind, substantial savings can be realised.

It is important to communicate your cost saving measures in a way that encourages responsibility in your drivers.

However, there is a golden rule – Do not accept costs without challenge. You can use a carrot or stick approach or a combination of both. If there is an element of driver choice in the car selection process, you can encourage drivers to take a ‘greener’ approach and select the car with the lowest CO2 figure on the list, safe in the knowledge this also will result in higher mpg and lower NIC costs.

Journey Planning

Emphasise the importance of journey planning. The saving will be on fuel costs, wear and tear on the vehicle and increased productivity from the drivers. This is such an important area in reducing costs it is worthwhile to spend time ensuring constant improvement. Do not just pay lip service but revisit the topic on a regular basis. Invest in satellite navigation systems, there is no cheaper alternative.

Daily Rental Cars

There may be times when there is no alternative but to use daily rental cars. Make sure any rental cars are used correctly and sparingly, only when needed. Watch out for poor organisation, making a booking for two days when one will do. Insist all daily rental cars are refilled with fuel prior to return. Vehicle Use

How drivers use their vehicles directly impacts on costs to the company.

Safe Driving

If drivers are encouraged or rewarded in how they drive, that is careful, considerate and defensive driving, the number of accidents can be reduced and the costs that go with it. Lower insurance premiums and no insurance excesses mean reduced costs. Monitor accidents and put in a road risk management strategy.

Frugal Driving – Alongside careful and considerate driving, one can add smooth driving, going through the gears carefully at the right rpm and braking slowly well in advanced. The drivers will save considerable amounts of fuel and reduce engine and tyre wear. Ask the drivers to switch off the car engine if stationary in traffic.

Vehicle Checks:

  1. Encourage your drivers to care more for their cars as part of taking responsibility.
  2. Make sure they read the handbook and maintain as per approved service levels.
  3. Get them to check fluid levels regularly, report any faults quickly however minor.
  4. Insist your drivers clean and maintain the exterior of the vehicle.

These measures reap rewards as follows:

  1. Increased residual value
  2. Less downtime for repairs
  3. Reduced spending on parts
  4. Decrease in fuel consumption


Drivers must check their tyres regularly for damage and wear. Insist they know the recommended tyre pressures and get them to check wheel alignment regularly. Fuel costs will be substantially reduced. Fines and penalties Do not condone any irresponsibility with financial penalties and make sure you operate a zero tolerance policy in the following areas:

  1. Speeding fines
  2. Parking fines
  3. Non payment of congestion charges


Make sure fuel cards are issued to the drivers. Restrict the fuel applicable to the car ie diesel or petrol and allow only fuel, oils and fluids, to restrict misuse.

Encourage economy and efficiency when purchasing or using fuel. Use the fuel cards to provide the information to reward drivers who use achieve a) the highest mpg and b) the most improved mpg Ask your drivers to check the fuel cap is not broken or missing Ask your drivers to remove any additional weight in or on the vehicle such as cases or boxes in the boot or roof boxes.

In Conclusion:

  1. To continue to monitor and save on vehicle running costs will require:
  2. The support of your employees
  3. Your attention to detail
  4. Constant and consistent application

5 Tips For Drivers To Cut Costs

  1. Drive smoothly and change gear as soon as possible without labouring the engine, typically between 2000 and 2500 RPM.
  2. Try to avoid constant use of your car air-conditioning system.
  3. Check tyre pressures regularly and adjust them to suit the load as advised in the handbook.
  4. Stick to 70mph on the motorway. By travelling at 80-85mph, fuel costs can increase by 25% or more.
  5. Fill up before getting on the motorway to avoid higher pump prices.

5 Tips To Reduce Vehicle Use

  1. Combine trips – do several short trips in one longer trip.
  2. Always phone to confirm an appointment before leaving.
  3. Consider video conferencing if available.
  4. Create an errand routine – say Wednesday lunchtime, each week to do any shopping, banking and visit the post office.
  5. Park in the first spot you find even if it requires a longer walk – reverse in.

5. Reducing The Taxes

“There is no such thing as a good tax” – Winston Churchill

When you buy and run company cars and vans and other vehicles, you and your drivers will need to pay various taxes.

These include:

  1. Vehicle Excise Duty (VED), also known as ‘road tax’ or ‘vehicle tax’
  2. Excise Fuel Duty
  3. Benefit-In-Kind Income tax
  4. A Congestion Charge in certain Low Emission Zones (LEZs)

However, you can minimise your tax bill by choosing more fuel-efficient vehicles.

For example, the taxation system for both VED and company car tax is now based on a vehicle’s emissions. The ‘cleaner’ your vehicle, the less you will pay. The rate of VED payable is calculated on a sliding scale, with the most polluting petrol and diesel vehicles – those emitting over 255 grams of CO2 per kilometre (g/km) – paying over £400 per year. Conversely, those emitting up to 100g/km are zero-rated and those emitting between 101-120g/km pay just £35 for 12 months. There are big savings to be made.

Vehicles running on alternative fuels also qualify for a lower rate of VED. You can find information on VED rates on the Directgov website.

The Car Fuel Data service from the Vehicle Certification Agency (VCA) also provides details of a vehicle’s VED band together with its fuel consumption and CO2 emissions figures.

As you will know from recent events, Excise Fuel Duty is charged on road fuels and oils, and will be payable every time you buy fuel. The rate payable will depend on the type of fuel you use. Alternative fuels are charged less fuel duty than petrol and diesel.

Depending on which alternative fuel you choose, you could pay almost half the amount you would be paying for petrol or diesel. Read the current fuel duty rates on the HM Revenue & Customs (HMRC) website.

Capital Allowances

Tax relief on the purchase of new vehicles is now based on CO2 emissions. Companies that opt to buy environmentally-friendly cars can benefit from favourable capital allowances. For example, electric cars and those with very low emissions of less than 110g/km can qualify for 100 per cent capital allowances. Find out about tax relief on cars at ‘capital allowances on cars’

Company Car Tax Arrangements

If your employees use company cars they will have to pay tax on their use as a benefit-in-kind. This tax is also now based on the CO2 emissions of the vehicle. The lower the emissions, the lower the personal tax paid by the driver. Find out about calculating the benefit-in-kind tax payments for company car drivers on the HMRC website.

Diesel Company Car Tax Supplement

The 3% diesel tax supplement on benefit-in-kind tax for company cars and fuel was disproportionate. It was introduced over 10 years ago to penalise the use of Euro 3 diesel cars because they were much more polluting than their petrol-powered equivalents. Euro 5 standards has brought diesel cars much closer in line with petrol cars in terms of pollutants emitted.

In the 2012 March budget, the Chancellor announced the removal of the 3% diesel surcharge from April 2016. It was later confirmed by the Treasury that this will apply to all registered diesel vehicles and not just those registered after April 2016. This is good news for company car drivers and means diesel cars will become even more popular in company car fleets.

Congestion Charge

Congestion charges and tolls are payable for driving on certain roads. If you drive on these roads you will have to pay these additional charges unless your vehicle qualifies for an exemption. In addition to the congestion charging zone, if you operate certain vehicles within London, you may have to pay a daily charge to drive within the LEZ unless your vehicles meet emissions standards. See our guide on how to use vehicles in the London Low Emissions Zone (LEZ).

The Useful Websites:


6. Using Daily Vehicle Rental Wisely

When it comes to cutting company car costs, the temptation for many smaller businesses is to encourage staff to use their own cars for business. However, this is fraught with difficulties with the strengthening of Corporate Manslaughter legislation in April 2008.

The business needs to know if these privately owned cars are adequately insured for business purposes, fit for the job, fully maintained, and covered by roadside assistance. It can be an administrative headache, costing more than any potential savings. This leaves the alternatives of paying cash for company cars or contract hire / leasing.

Flexibility is key in business and never more so than when the future is shrouded in uncertainty. Daily rental is a viable alternative to vehicle purchase, giving the certainty that employees are travelling in safe and reliable vehicles. Similarly, business uncertainty means that employers may not want to commit to leasing vehicles on a typical three or four-year contract with the risk of financial penalties if terminated early.

Using short-term hire means that vehicles can be returned at any time without charge if business demand drops or if business activity increases or circumstances change – perhaps due to seasonality – then extra vehicles can be immediately added.

Daily rental offers the following benefits:

  1. Quality well maintained vehicles – most are under 6 months old.
  2. Vehicles that are fit for purpose – Whether it is a fuel efficient car for a long journey or a small van for a delivery, daily rental provides the flexibility to chop and change the fleet to ensure vehicles are always fit for their purpose.
  3. Ready to meet demand – From just 1 day to 6 months or more flexible vehicle rental means SMEs can upscale and downsize their fleet according to seasonal and fluctuating demand with no long-term commitment.
  4. Control – Rental reservation systems offer SMEs the flexibility to set agreed car groups for employees to rent, ensuring that any travel policies are adhered to.
  5. In an emergency – 24 hour roadside assistance ensures employees can rely on their rental provider in times of distress or difficulty, night or day

Insured Rental cars can be covered by either the rental company’s insurance or a company’s own insurance so your company can rest assured the car will always be adequately covered for the journey

Make sure any rental cars are used correctly and sparingly, only when needed.

Watch out for poor organisation, making a booking for two days when one will do.

Petrol Tank Fill-ups

Make sure your drivers refill the fuel tank to the level when it was delivered so you avoid expensive re-fuel costs.


Where possible use you own company insurance, it will be cheaper and easier to negotiate with if things go wrong.


This is really important – make sure employees take responsibility for inspecting the vehicle thoroughly when checking in a rental vehicle including the paintwork, tyres, windscreen, tools and lights for any damage. Also get them to check the interior and make sure all the controls work.

Employees should note all faults on the delivery note, keeping a copy. When the vehicle is returned make sure the paperwork agrees with the vehicle’s condition and obtain a signature from the pick up driver that there is no additional damage. If your employees have cameras on their phones, get them to take pictures.

Daily Rental Provides:

  1. Financial advantages
  2. Environmental benefits
  3. Helping businesses comply with their occupational road risk management responsibilities

Financial Advantages Of Using Daily Rental:

  1. No early settlement penalties
  2. No fixed period
  3. No fixed mileage
  4. No advance rentals
  5. No fixed contract – pay as you go

7. Go Green – It Will Save You Money

Small and medium size businesses are often slower than large concerns to tackle green issues. There is often a view that going green will increase costs and cost them money, especially in the short term. When it comes to reducing your company car fleet carbon footprint nothing could be further than the truth.

The Energy Saving Trust (EST) has calculated that if all businesses in the UK together switched to greener company cars, they could save almost £3 billion a year through reduced tax and fuel bills. The Trust also points out a company running 20 vehicles could expect to save almost £20,000 a year by encompassing a range of best practice green measures.

Whether through the addition of low emission vehicles on to the company car fleet or introducing alternatives to vehicle use or encouraging employees to drive in a more eco-friendly manner, there is plenty of cost saving green advice available to small businesses.

Remember, the environmental route is also the commercial route.

The first thing to do is get your drivers on the company side so they understand that going green is in both employees and company interests. Explain to them, they will also benefit through lower benefit-in-kind tax bills. You may use a carrot and stick approach or one or the other, depending upon which industry you are in as to whether recruitment and retention of staff are key. However, it is imperative you communicate with the drivers at all times.

Encourage your drivers to look at ways of reducing their business journeys, by better planning or using the phone or emails instead of a visit. Also encourage the drivers to share journeys if it is feasible. The aim is to use company vehicles less so also look at your fleet and decide if you can manage on a smaller number.

Advise your drivers to drive more eco friendly (smarter and safe driving techniques) as eco-driving can cut fuel use by 15%. See our eco-driving fact sheet on the webcars website

Remember all vehicle-related taxes such as vehicle excise duty, benefit-in-kind tax, and corporation tax as well as Class 1A National Insurance contributions are linked to CO2 emissions. As a result, you should be reviewing your company car list to ensure they offer drivers low emission vehicles.

Additionally, the lower a vehicle’s CO2, the better its fuel consumption. Indeed, even prestige cars with low CO2 emissions can now have a combined MPG over 60, saving substantial amounts in fuel costs.

Other issues to be considered are:

  1. Consider hybrid vehicles, still a rarity in small businesses but nearly 40% of the larger fleets.
  2. Light commercial vehicles emissions data is now available at
  3. Stop employees using their own cars on business trips, these grey fleet vehicles typically emit 10% more CO2 than the average company car. Consider instead buying a contract hire car at the end its contract to use as a pool car.
  4. Look at the use of rental cars as an alternative to own vehicle use as well as car sharing.
  5. Withdraw the payment of driver’s private fuel by the company. It is cheaper for both companies and drivers if the drivers pay for their private fuel.

A Plan For Action

  1. Stage 1 – Remove any cars with CO2 more than 160 g/km which will save on fuel, national insurance and benefit in kind taxation. It will also keep out larger 4 x 4’s and sports models
  2. Stage 2 – Adopt a dual approach this time by removing any cars with CO2 more than 140 g/km and with a minimum fuel consumption of 55 mpg (combined). This will save more in tax and fuel costs, although it will restrict your choice since only around a third of cars, invariably the newer models, achieve these standards.

8. Drive to Save

Safe in the knowledge the average UK driver could save £300 each year in just following a few basic rules, give a copy of this fact sheet to all of your drivers. Don’t forget to keep one for yourself. Also, remember most of your drivers will be driving more miles than the average so you will save even more. With prices continuing to rise, now is an excellent time to advise your drivers to learn to drive more efficiently.

Before moving off:

If you can merge or double up on journeys then do so. Shorter journeys don’t allow the engine to warm up enough. A cold engine uses almost twice as much fuel and catalytic converters can take four or five miles to become effective. Therefore avoid short journeys if you can.

Make sure you drive light:

Try to lighten your load if possible by removing heavy objects and clear your boot of unnecessary items so that you can travel as lightly as possible. If you carry excess weight in a vehicle you will increases fuel consumption as your car has to work harder to accelerate.

Stay aerodynamic:

By removing roof boxes and racks if not being used. Remember that car designers spend fortunes striving to make their vehicles as aerodynamic as possible. Adding a roof box or rack spoils this by increasing drag on your car, making your engine work harder and increasing fuel usage, particularly at high speeds.

Check tyre pressure

Check pressures frequently, ie at least once a month and before long journeys. Under-inflated tyres are not only dangerous and but also increase your fuel consumption. While checking tyre pressure, it is also advisable to check the depth of the tyre tread to ensure they are legally compliant.

Do not sit there warming the engine

Quite simply, modern engines don’t need to be “warmed up” so idling before you start a journey simply wastes fuel and causes engine wear. Start the car and just drive off gently and smoothly.

When driving:

Remember that fuel efficient driving techniques cut your fuel costs and also save money by reducing the wear and tear on your car.

Switch the engine off

If it is safe to do so, turn off your engine when stationary for more than a minute or two. Modern cars use virtually no extra fuel when they’re re-started without pressing the accelerator so you won’t waste lots of fuel turning the car back on. Even better, as many car manufacturers have introduced ‘stop-start’ technology invest in one of these models. The car shuts off the engine when the car is stopped and re-starts it when the driver hits the accelerator.

Drive smoothly

Anticipate the road as far ahead as possible to avoid unnecessary braking and sharp acceleration. Decelerate early when slowing down. All obvious but necessary to save money and it will make you a safer driver.

Remember Driving at 85mph uses approximately 25% more fuel than 70mph, so slow down and avoid excessive speeds when possible. When driving, shift to a higher gear as soon as possible. Your car reduces its fuel consumption when you are driving at lower engine speeds. Change up a gear between 2000 and 2500 revolutions per minute (rpm).

Close your windows

If travelling at 60mph or more – The aerodynamic drag on your car of an open window at speeds of 60mph or more adds to your fuel usage so keep your windows closed at high speeds.

Use the air conditioning sparingly

Your engine has to work harder to power the air conditioning components. If you are driving at low speed, open the window instead.


If you are really serious about saving money when you drive then you should aim to keep your speed between 45mph and 50mph to maximise fuel efficiency. This is the optimum speed range to do so but make sure you always abide by any speed limit set.


To find out how much it costs to drive your car, go to the Directgov website where there is a fuel consumption search tool which details the tax and fuel costs of running your car.

9. Electric Cars Save You Money – Yes or No

According to the Society of Motor Manufacturers and Traders, over 90% of electric cars in 2012 have been sold to businesses. However, charging points and battery range still need to be sorted before enough businesses decide to make that all important switch.

With petrol and diesel prices, heading forever upwards and the Exchequer taking more and more, the question is, can you save the company money by investing in electric cars.

The simple answer at the moment is that you probably won’t lose money and you could well make some savings. There are however a few caveats; for instance electric cars, as they are at present, are not going to appeal to drivers doing 20,000 or 30,000 miles per annum.

However, if you drive on a commuter run, around 10,000 miles a year, there is a strong financial case for going electric, especially if there is free parking when you arrive.

Just to dispel a couple of myths:

Electric cars cost pennies to run – a recharge will cost between £2.50 and £3.00 depending on your electric tariff. This should give you around 100 miles driving, that is a cost of £300 a year in electricity charges for your 10,000 miles. So, how does this compare with diesel and petrol cars? A diesel car will need to deliver 45 miles per gallon, on average, to cost the same in fuel for the year. Not only is this figure more easily achievable, the new eco-friendly diesels are surpassing that figure comfortably. A petrol car doing 35 miles per gallon, on average, would cost substantially more, even greater if stuck in traffic.

Only electric cars enjoy free car tax each year – not now as many diesel cars and a few petrol models have achieved the same status. Of course, electric vehicles have been around for many years, but not in the present form with the increases in new technologies. Therefore, it is difficult to quantify many of the costs involved. If there is a huge increase in the take-up of electric cars then many of the costs will reduce dramatically. But that take-up is still uncertain and the lesson of LPG cars is still with us.

Certainly, the costs of insuring appear to be higher by about 25% than a corresponding petrol or diesel car. The main reasons would appear to be the higher replacement cost and the complexity.

Servicing should be a little cheaper for electric, there are less parts or filters to check or change.

Depreciation is still the big unknown although the contract hire companies have now put their heads on the block by underwriting residuals. At present, they do appear low, but until there are electric cars coming back off contract and more is known about battery longevity, we cannot see a move upwards in residual values in the near future. Again, LPG cars give us a cautionary tale.

It is the reduction in some external costs which is pushing some businesses to use electric cars, especially in London. Electric users could save over £2,000 a year in congestion charges, although low CO2 petrol and diesel cars can also save the same. Just as appealing, perhaps even more so, is that many London boroughs including Westminster are now offering the drivers of electric cars only, free parking in certain bays.

Recent changes to the Benefit in Kind (BIK) rate could also have a negative effect on the uptake of electric vehicles among business drivers. At present, business drivers running electric vehicles do not pay any Benefit-In-Kind tax, while low-emission hybrids like the Vauxhall Ampera are in the 5% company car tax bracket.

However, the Government has decided to make business users pay company car tax on low-CO2 vehicles from 2015/16 and both types of vehicle will fall into the 13% band. This could have a negative effect.

The electric market will hope that:

  1. Electricity companies will offer more, smarter overnight tariffs.
  2. The cycle of more take-ups followed by lower purchase prices etc. accelerates.
  3. Oil prices continue to rise.

We shall see

The Other Options – Hydrogen

  1. Use on-board hydrogen fuel cells ie. Advance chemical batteries.
  2. Turn hydrogen into electricity then used to drive a motor.
  3. Water vapour is only exhaust pipe emission.
  4. Only a handful of hydrogen fuelling points in the UK.

The Other Options – Plug In Hybrids

  1. All electric battery with an internal combustion engine.
  2. Run a short distance, typically 12 to 40 miles using the battery before switching to an internal combustion engine.
  3. Alleviates the problem of ‘range anxiety’ associated with all electric cars.
  4. Chevrolet Volt is the world’s top selling plug-in hybrid followed by the Toyota Prius PHV

10. Funding Company Cars by Cash or Contract Hire

More businesses than ever now contract hire their company cars instead of paying cash but is the reason just the obvious one. If you don’t have the cash, contract hire.

The answer is more complex and there is no set rule, as individual circumstances mean it is a different decision for everyone. Deciding whether to contract hire or pay cash can either be made on pure intuition or a careful appraisal of the issues involved.

What would make you contract hire instead of paying cash? Let us say you have sufficient cash in the bank to fund all of your company cars if so required.

First of all, contract hire fixes your costs of motoring over the contract period, so if you are the type of organisation who operates tight budgets, this method of funding makes life a lot easier. Company vehicle repairs out of warranty can be very expensive. Full maintenance contract hire removes the possibility of unexpected huge vehicle repair bills blowing your budgets to pieces.

At the same time, contract hire equalises out your motoring costs incurred over the period of the contract. Each month you will be paying some capital cost, some interest, some maintenance etc etc in equal payments. To many businesses, an even cash expenditure on company vehicles is nice, it suits far more, rather than peaks and troughs, especially if the company’s own income is even over the year.

Using contract hire instead of cash conserves your capital. You might have the cash available but you may be able to use it more efficiently in other parts of the business, employ another member of staff, bulk buying of stock etc. It seems a little wasteful to use all your cash just for moving people or goods around.

Another advantage of contract hire over cash is one that it rarely mentioned but is of real value. Running vehicle fleets can create a mass of paperwork, documents, invoices etc. It takes time to deal with all of this. Also, suppliers have to be negotiated with and paid with different payment methods and terms etc.

Contract hire reduces all of this to one direct debit. It eliminates most of the administration costs, stresses and financial risks of vehicle ownership, the removal of these chores are almost enough to justify contract hire on its own.

Then, there is VAT. Normally a business cannot claim back the VAT when it buys a car for cash. It is considered there is always some private use, going home and back, going to the shops etc. HMRC does actually say that if a car is used 100% for business and some enforcement is in place such as clauses in employees’ contracts etc; then, exceptionally, all of the vat on the purchase price of the car can be recovered. However, it is a brave company that goes down this route, the HMRC advice is a little contradictory and the rules are strict.

Organisations such as driving schools, daily rental companies and contract hire companies, can reclaim all of the vat on the purchase price of a new car, cars are their business. The contract hire company is therefore able reclaim the VAT on the car cost and reflect the saving in the rental, so the lessee gets the benefit.

However in the tax world nothing is ever straightforward. The rentals, themselves attract VAT but you cannot claim all of it back. As the lessee, you will only be able to claim 50% of the VAT incurred on the monthly rental if there is any private use of the car (50% is better than nothing).

Some businesses that are exempt or partially exempt for VAT purposes (because they supply VAT-exempt or low VAT rate goods and services such as insurance, finance or training) may only be able to recover a proportion of the 50% of recoverable VAT.

Again, if there is no private use at all, such as a pool car, then 100% of the VAT can be recovered by the lessee.

This 50% block on VAT recovery only applies to the finance element of the rental charge. It does not apply to any of the services in the contract hire agreement, for example, maintenance, for which VAT is fully recoverable, subject to normal partial exemption rules.

Another area where businesses prefer contract hire to cash is when the vehicle has finished its useful life with that business. With contract hire the residual value risk and the chore and costs of disposal are taken on by the contract hire company, leaving the lessee to concentrate on its business.

Advantages of funding by cash:

  1. Flexibility: the business retains full control of fleet and is not locked into contracts
  2. Any resale profits (if applicable) at the end of the vehicle’s life will be retained by the business
  3. Capital allowances available for depreciation element
  4. VAT on maintenance and repairs can be reclaimed

Disadvantages of funding by cash:

  1. Unable to reclaim full 20% VAT on purchase price unless it is used solely for business
  2. Full exposure to residual value risk
  3. Administration burden lies with the business
  4. Takes risk for unexpected repair costs
  5. Ties up capital that could be used elsewhere

11. Reducing Company Car Costs – Check List

  1. Revaluate your existing method or methods of funding
  2. Consider moving to full maintenance contract hire to fix costs
  3. Consider moving to using whole life costs to set budgets etc
  4. If you have a one manufacturer policy, consider scrapping it
  5. Make sure you really need all of your company vehicles
  6. Consider setting an upper CO2 emissions limit for new cars – say 150g/km
  7. Consider setting a fuel economy (combined) limit – say nothing under 50 mpg
  8. Consider whether it is worthwhile to invest in newer more efficient models
  9. Consider using vehicles with start-stop technology
  10. Consider making diesel the preferred option over petrol vehicles
  11. Consider keeping your company vehicles longer, typically four years instead of three
  12. Phase out ‘grey fleet’ car use where possible – consider daily rental or a pool car
  13. Carry out a comprehensive occupational road risk management strategy and review each accident – lowers insurance premiums
  14. Make drivers accountable for their actions re non payment of London congestion charge, and parking fines
  15. Consider various driver training courses to see if they will encourage drivers to drive economically
  16. Use Fuel cards if not already doing so
  17. Use the fuel card information to incentivise drivers to drive frugally
  18. Insist all vehicles are serviced regularly
  19. Make sure all journeys are needed – consider phone calls or video conferencing
  20. Pool journeys where possible
  21. Plan all necessary journeys
  22. Consider satellite navigation systems to determine the cheapest route
  23. Make drivers check tyre pressures regularly
  24. Advise drivers to use air conditioning sparingly
  25. Urge your drivers to drive slower
  26. If you have a free private fuel policy, get rid of it
  27. Advise drivers to use cruise control of they have it
  28. Consolidate to one daily rental supplier
  29. Consider moving you daily rental requirement to a live on line booking system with low rentals. We have one.
  30. Make sure your car rentals are not running into two days instead of one day due to poor organization
  31. Insist rental cars are refuelled before they are returned
  32. Encourage drivers into a culture of caring for their vehicle – checking fuel levels regularly and tyre wear
  33. Ensure drivers report small scratches and dents immediately and repair promptly