Calculating the amount of cash to give drivers as an alternative their company cars is not a straightforward exercise. Unfortunately many keen number crunchers faced with this task are too quick to rush for their calculators, only to find that their results are far from well received.

I would suggest that before any calculations are started, it is essential that all concerned parties within the organisation agree exactly what the company is trying to achieve. A good starting point would be to ask the following questions:

• Why are we offering cash a cash alternative?
• If we are trying to save costs is cash the only option?
• What message do we want to give to our company car drivers?
• Can we accept that there will be winners and losers amongst our drivers?
• Do we understand the non-financial implications in terms of risk?
• Should we have a contingency for error or changing circumstances?
• Will our administration systems be able to cope?

When this is completed you should be in a position to start looking at the numbers, but again important decisions have to be made. For example over the past year we have been asked to consider the following scenarios for our clients:

• Offer the drivers an amount that leaves the company in the same financial position?
• Try to find a situation where the employees and the company are no worse off?
• Offer cash just as a part of a flexible benefit package and hope that few drivers take it?
• Get rid of company cars at any cost?
• Offer each driver an individually calculated allowance considering his or her private mileage?
• Calculate one allowance for each grade?
• Calculate a cash allowance assuming the employee will not run a car for business purposes.
• Calculate the allowance making maximum use of mileage rates

Now imagine you have to do these calculations for 500 drivers. Each driver has a different car and vastly different private mileage, some still get free fuel and others are very high insurance risks. Should you consider a career away from finance? It is totally impractical to start number crunching without specialist software or at least a very good knowledge of spreadsheets.

Our own software “Fleet Choice” will take all of the required information (and there can be lots of it) and allow the user to model many scenarios.

Perhaps the most disappointing part of implementing a properly consider cash alternative comes via employee feedback. We have seen situations where employees are given cash that will make them slightly better off buy using their own cars for business purposes, but the take up is minimal. The reason is usually down to communication. Most employees will not have a high degree of tax or financial knowledge, so how can they be expected to work out their own financial positions? Employees will take advice from friends, listen to urban myths such as cash is the answer at any price, or simply refuse to make a decision and stick with what they know. Giving employee’s access to software that will show them their position and allow various what if scenario’s is the Solution. We offer a free demo version of our software “Driver Choice” which can be found at www.cartax.co.uk

There is no magic solution and the calculation of cash allowances is not simple. But think about it, cars are expensive, circumstances change, and the company may have needs that outweigh the financial savings, who will carry the can when mistakes are made?

David Rawlings
Senior Manager
Deloitte & Touche