The cost of light vehicles is getting heavier!

Underutilised vehicles still have employers incurring running costs and paying FBT when there may be a more efficient means of providing the benefit to employees.

With the onset of hybrid working arrangements as result of the pandemic and rising oil prices, many organisations are experiencing a need to review and restructure their company vehicle arrangements to ensure their fleet remains cost efficient and optimised.

A number of companies have been looking to reduce their fleet size due to the underutilisation of work or ‘tool of trade’ vehicles as a result of the lockdowns and hybrid working arrangements.

What are the costs?

The typical costs of work vehicles include fuel, registration, depreciation etc., however, there is also the added cost of Fringe Benefits Tax (FBT) when organisations provide vehicles to employees.

Given the change to working arrangements, employees are not having to travel for business as much as they did pre-pandemic, which has led to a reduction the business use percentage of vehicles resulting in a greater FBT liability.

Organisations are also seeing vehicles being underutilised (or sitting in the garage of the employee) while the employer is still incurring running costs and paying FBT when there may be a more efficient means of providing the benefit to the employee.

How do we optimise the costs?

We have been undertaking vehicle policy reviews to assist organisations in determining whether providing a vehicle to an employee is optimal or if there is an alternative (e.g. an allowance).

This review can be done with the assistance of eLogbooks which traditionally were seen as a pure FBT compliance tool.

However, the data from these logbooks can also be used for:

  • substantiating a business use percentage for FBT purposes to potentially reduce an organisation’s FBT liability;
  • tracking vehicle utilisation which allows businesses to monitor which vehicles can be removed from the fleet and where employees could potentially move to pool or shared car arrangements or other alternatives. This would see a reduction in running costs and also FBT;
  • a means of substantiating and calculating a Fuel Tax Credit claim. We note for light vehicles, a fuel tax credit can only be claimed for fuel used off a public road and historically there may not have been an ability to determine how much fuel had been used off a public road.  As eLogbooks are based on GPS technology, the data from the eLogbooks can be used to support FTC claims.
    As noted in a previous article, where GPS technology has not historically been used to support the FTC process, there may be potential to introduce technology both to improve the accuracy of claims and ensure all entitlements are claimed. Given that this is highly likely in the case of light vehicles, this may be an attractive opportunity for many organisations.

As we move to new ways of working with the likelihood that hybrid workings arrangements are here to stay, we recommend organisations take the opportunity to review their fleet and the policies relevant to vehicles with a view to optimisation.

This will allow organisations to understand how their vehicles are currently being used in this new environment and provide the ability to identify cost efficiencies which should ultimately benefit the bottom line.

This story first appeared in KPMG Tax Now

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