Cash saving tip 1: Corporates should maximise AMAP rates to fund cash for car schemes

Recession has put corporate finances firmly in the spotlight so astute cash management is crucial if companies are to cut costs.

How companies fund cash for car allowances, for example, can result in significant savings, according to tax experts at KPMG.

For example a 40% tax-paying employee in receipt of a £5,500 cash allowance and travelling 10,000 business miles a year with a reimbursement rate of 13p a mile will receive £4,545 net of benefit-in-kind tax and National Insurance. Add in the fact that the employee can claim an additional £1,080 in tax relief because the company’s mileage rate is below the 40p per mile tax-free threshold and the employee will receive £5,625. The cost to the employer of paying that sum is £7,504.

However, the company can save £397 by opting instead to pay the maximum tax-free mileage rate (40p a mile) under Authorised Mileage Allowance Payments (AMAPs) and a lower cash allowance (£2,754 gross) on which National Insurance of £353 must be paid - at a total corporate cost of £7,107. From the employee’s perspective they continue to remain in receipt of £5,625 net.

Matthew Cook, Senior Manager Employment Tax in KPMG’s Reading office, said: “The employee is cash-neutral in the calculation, but there are savings for employers because they are paying less in tax and National Insurance.”

• KPMG is a member of Fleet Support Group’s Fleet Cost Reduction Steering Group. For more cash-saving ideas go to the interactive forum accessible at www.fsguk.com

Cash saving tip 2: Fuel management starts with choosing the ‘right’ vehicles

Fuel prices have dropped to levels not seen in the UK for almost two years - but new year increases could be on the way as oil producers turn off the production tap.

As a result, fleet decision-makers should not take their eye off fuel bill cost management because with the recession set to deepen budgets will become even tighter.

Efficient and effective fuel management begins when compiling vehicle choice lists with fleet chiefs and company car drivers opting for fuel-sipping models. And, with the Government’s motoring taxation policy being based on CO2 emissions, corporate and benefit-in-kind tax bills can be reduced by choosing low emission models.

In December the average UK price of a litre of petrol fell to 89.48p - a price not seen on forecourts since March 2007, according to the AA. Meanwhile, diesel prices dipped to an average of 101.93p per litre, a figure last seen in November 2007. Filling a typical 50-litre petrol tank now costs £15.11 less.

But, this month OPEC, the oil producing countries’ cartel, says production will be cut by two million barrels a day in a bid to force up the price of a barrel of oil, which has fallen by almost two-thirds in the latter half of 2008 to around $44 from $147 in the summer. As a result, fleets and drivers should expect to see petrol and diesel prices increasing.

Meanwhile, the focus on vehicle emissions, and therefore, fuel economy is being thrown into even sharper focus with the April 1, 2009 change in capital allowance rules. Whether firms buy or lease their company cars, vehicles with emissions above 160g/km will cost more to operate.

There is a direct link between CO2 emissions and fuel consumption (see chart below) and the Society of Motor Manufacturers and Traders says average UK new car CO2 emissions have fallen from almost 190g/km to 158.6g/km in 2008 - a fall of 16.4%.

That reduction is set to continue as manufacturers introduce a range of new emission-cutting technologies to the marketplace to meet tough new European Commission rules.

Typically, manufacturers are turning to new cutting-edge technology that combines weight-saving measures, engine downsizing, intelligent energy management and enhanced aerodynamics to deliver improved fuel economy and reduce emissions.

The CO2 legislation facing manufacturers means that 65% of new cars produced must average 130g/km by 2012, 75% by 2013, 80% by 2014 and 100% by 2015. An additional 10g/km must be achieved by complementary measures like alternative fuels and tyre pressure monitoring systems thus reducing the benchmark figure to 120g/km.

The link between CO2 and MPG

Source: Society of Motor Manufacturers and Traders

Cash saving tip 3: Astute low-emission choices can help companies and drivers slash tax bills and operating costs

Company car drivers can save themselves hundreds of pounds a year in benefit-in-kind tax through the careful selection of low emission models.

In calculating benefit-in-kind tax bills, the 2008/9 financial year saw the introduction of an ultra-low 10% tax rate on company cars (13% for diesel models) of 120g/km and below so the benefits of choosing the ‘right’ car are huge.

For example, BMW has developed a reputation for launching low emission models thanks to its EfficientDynamics technology. The manufacturer’s 120d SE and 118d SE are almost identical in many respects, but crucially the latter’s carbon dioxide emissions figure is 119g/km compared with the former's 128g/km.

That means in 2008/9 and 2009/10 the 120d falls into the 18% company car tax bracket, while the 118d is in the 13% tax bracket.

Tax experts at KPMG calculate that a higher rate tax-paying employee choosing the 120d will be faced with a tax bill of £1,611.60 a year, while the cash conscious higher rate taxpayer choosing the 118d will be in receipt of a £1,088 bill - a saving of £523.60 a year or £43.63 a month.

In addition, companies that opt for the cheaper 118d on fleet choice lists will save cash in terms of lower corporate tax charges, reduced National Insurance paid on benefits-in-kind, lower Vehicle Excise Duty and reduced whole-life costs.

As tax experts at KPMG point out, drivers who choose the 118d lose one second in terms of the model’s 0-60 mph time, but gain around 4 mpg and more than £40 a month!

The 118d was named World Green Car of the Year at the 2008 New York International Auto Show.

• KPMG is a member of Fleet Support Group’s Fleet Cost Reduction Steering Group. For more cash-saving ideas go to the interactive forum accessible at www.fsguk.com

Cash saving tip 4: Tyre care saves money and lives

One in five tyres on company vehicles replaced by Fleet Support Group is illegal putting the safety of drivers, their passengers and other road users at risk.

In addition, if a vehicle fitted with an illegal tyre is involved in a road crash then investigating police officers could knock on the company door for answers to their questions with a potential prosecution the result.

But, driving on unsafe tyres is not only a safety issue. Incorrectly inflated tyres can increase fuel consumption by up to 10% - and so cost money as well as endangering lives.

Best practice suggests that tyre pressures and condition should be checked once a month.

In 2007, 43 motorists were killed in crashes where illegal, defective or under-inflated tyres were a contributory factor, according to TyreSafe, a not-for-profit organisation dedicated to raising awareness of the importance of the dangers of defective and worn tyres.

Checks undertaken by mechanics at FSG’s nationwide network of independent Masterserve outlets reveal that tyres may be under- or over-inflated; tread may be below the 1.6mm legal minimum across the central three-quarters of the breadth of the tyre and around the entire circumference; tyre wear may be irregular which may indicate a wheel alignment or vehicle loading problem; or the wall of a tyre may be damaged.

The current fine for driving on illegal tyres is £2,500 per tyre and three points per tyre on a driving licence.

At 70 mph the stopping distance of a car fitted with a new tyre with 8mm of tread is calculated to be almost 100 metres; with 3mm of tread remaining a car’s stopping distance increases to 150 metres; with 1.6mm of tread remaining a car’s stopping distance is 200 metres - double that of a vehicle fitted with a new tyre - and with just 1mm of a tread remaining a car’s stopping distance is 250 metres.

FSG Chairman Geoffrey Bray said: “Too many fleet decision-makers assume that drivers are carrying out tyre checks, but they are not. We uncover numerous horrors in relation to tyre condition when vehicles are taken to our network of repairers.”

Masterserve garages are equipped with Masterview - a unique remote video inspection system that enables FSG and fleet managers to view the condition of vehicles and components anywhere around the country, either in real time or recorded for later transmission.

Mr Bray said: “On viewing the live pictures fleet managers are often horrified at the condition of tyres on some of their vehicles. Tyres are the only part of a vehicle that are in contact with the road so it is essential that they are in tip-top condition, which also helps optimise fuel economy. Ensuring tyres meet the legal requirements is a vital part of any corporate risk strategy.

“In the event of a crash involving a vehicle being driven on business, tyre condition will be one of the issues looked at by investigating police officers. A failure to ensure checks are being carried out and to have a record of those checks could leave companies wide open to court action.

“As vehicle service intervals have increased, preventative maintenance is not completed because vehicles are seen by trained mechanics less frequently. It is therefore vital that drivers are reminded of the importance of checking tyre pressures, tread and general wear and tear regularly. This is particularly vital with more vehicles fitted with low profile tyres, which typically do not last as long as ‘traditional’ tyres.

“Tyre care is not only important in terms of risk management, but crucial in terms of cost management as bills can rapidly escalate.”

• For further information on tyre safety go to http://www.tyresafe.org

FSG wants to hear your best cost-saving tips

The financial shocks of recent months have spread across the whole UK economy with a devastating impact and analysts are not predicting a prosperous new year.

Indeed, most economic commentators expect the recession to deepen in the first part of 2009 with recovery shoots unlikely to be seen until the latter stages of the year or even into 2010.

With companies facing up to a deterioration in the availability of working capital, investment capital, reduced and withdrawn lines of credit, job cuts, decreasing recruitment and expansion plans being put on hold, proactive business measures are a priority.

That is why Fleet Support Group has launched its Cost Reduction Group Interactive Forum.

One of two interactive online forums - the second is the RiskMaster User Group Interactive Forum - it is designed to help companies cut vehicle operating costs by sharing best practice.

As a result, we want to hear what cost-cutting actions you have taken to keep fleet budgets under tight control. The interactive forum is the platform for exchanging news, views and information and is now live.

Access to both forums is via a password-protected website. For further information and to join the forums email helpdesk@fsguk.com.

FSG’s Fleet Cost Reduction Steering Group was established earlier this year and charged with compiling and promoting an action plan to cut fleet costs against the background of economic turmoil.

The Group comprises representatives of 20 FSG customers, automotive tax experts from advisers KPMG, lawyer Kevin Basnett, of Goughs Solicitors, and is chaired by Gary Kent, who runs Toot Rock Consulting and has around 30 years' fleet experience, latterly as European Fleet Manager at City business solutions organisation Dun & Bradstreet.

Mr Kent said: “Cost management is the number one priority for all fleet operators amid the ongoing economic crisis. Through the cost reduction forum we hope to get lots of ideas from customers on new ways or working. We believe it is vital for fleets to share with each other the cost saving ideas that are being introduced. The forum is the platform for those ideas to be exchanged. There are no excuses for not taking out cost.”