This section is designed to clarify commonly used terms and acronyms from the leasing industry.

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A

Advisory fuel rates (AFR)

Advisory Fuel Rates are guidelines recommended by HM Revenue & Customs (HMRC) as fuel only mileage rates for business travel in company cars. The rates apply where employers reimburse employees for business travel in their company cars, or require employees to repay the cost of fuel used for private travel.

Alternative fuels

There are a range of alternative fuels (as opposed to petrol and diesel) and energy sources for passenger cars and commercial vehicles, which can assist fleets in reducing CO2 emissions and saving on fuel costs.

Alternative fuel types include:

• Bio-diesel - Renewable fuel produced from crops or waste cooking oils
• Bio-ethanol - Alcohol produced from fermented cereal crops
• Fuel Cells - Electro-chemical devices using hydrogen and oxygen to produce electricity, which powers an electric traction motor in the vehicle
• Hydrogen - Fuel produced from the breakdown of a hydrocarbon source (natural gas, fossil fuels or ethanol)
• Liquid Petroleum Gas (LPG) - A blend of propane and butane
• Natural Gas - Extracted from oil and gas fields. Compress Natural Gas (CNG) powered vehicles use natural gas that has been stored at pressures up to 250 bar (3600 pounds per square inch)

Annual contributions

The amount an employee is required to pay as a condition of the car being available for private use. This is deducted from the taxable benefit for the year in which the payments were made (see Benefit in Kind).

Approved mileage allowance payments (AMAP)

An employee who undertakes business mileage in their own car may receive a mileage allowance from their employer. This is designed to cover all the costs of owning and running the car, including depreciation and any interest paid on a loan to buy the car. The allowance is expressed as a rate per business mile. The Inland Revenue allows up to a certain level of allowance to be tax free.

Since April 2002 the rates have been:

• Up to 10,000 miles per annum – 40p
• In excess over 10,000 –25p.

AMAPs differ from Advisory Fuel Rates (see above) in that they apply specifically to privately owned vehicles used for work related driving and not company cars.

B

Balloon payment

A large final payment under a finance agreement normally in line with the predicted value of the car.

Balancing allowance

An additional allowance given in the year that an expensive car is sold if the capital allowances given are insufficient to cover the actual depreciation suffered on the car.

Benefit in Kind taxation

When a company car is made available for the private use of an employee, HM Revenue & Customs calculates a 'benefit in kind' value for the vehicle up to a maximum of 35% of the vehicle’s list price, in one percent increments depending on the vehicle’s grams per kilometre (g/km) CO₂ emission levels. Diesel vehicles incur an suppement of 3% in recognition of their high particulate emissions. From 6 April 2008, the government is introducing a new 10% banding for BIK taxation for vehicles emitting CO₂ at 120g/km or less, which will provide further savings in both BIK and employer’s National Insurance Contributions (NIC). The diesel supplement will remain in place.

Business mileage

Any journey that the employee is necessarily obliged to undertake in the performance of their duty. The Inland Revenue states that travel from home to the normal place of work does not constitute business mileage.

BVRLA

British Vehicle Rental & Leasing Association (BVRLA) is the professional association for providers of vehicle rental, leasing and fleet management services for both passenger and commercial vehicles. The BVRLA has a comprehensive code of conduct for members and is active in lobbying the government and its agencies on behalf of the industry and its customers. DFM is a member of the BVRLA.

C

Capital allowances

A statutory tax deduction for depreciation. The allowance is given annually and is 25% of the written down allowance, this is restricted to £3,000 per expensive car. With leased vehicles, the fleet management company, as owner/lessor of the vehicle, will claim capital allowances, which will be passed back to the customer in the form of reduced rentals.

Car Policy

The company’s car policy is the strategy it adopts towards the provision of vehicles for work related driving. This can range from offering salary alternatives to employees, possibly including the provision advantageous personal finance schemes for vehicles, through to full company car provision. Company cars may be allocated on a restricted basis, possibly relating to job status, through to derestricted (user chooser) policies. A company’s car policy may take in a range of considerations, including finance, human resource and environmental elements.

Cheap car

A car that costs less than £12,000 for tax purposes (see also Expensive Car).

CO2 emissions

The Kyoto Protocol established in 1997, committed signatory nations to cut greenhouse gas emissions to 5% below 1990 levels by 2008-2012. Carbon dioxide emissions (CO₂) from vehicles are a factor in global warming, so company fleets have been a focus of measures such as CO₂ emissions-based Benefit in Kind company car tax, Road Tax (Vehicle Excise Duty) reforms and the London Congestion Charge. 

Conditional sale agreement

A purchase agreement where the parties have to perform before the title, or ownership, of the vehicle passes.

Consumer Credit Act

The Consumer Credit Act 1974 (amended 2006) requires most businesses that offer goods or services on credit or lend money to consumers to be licensed by the Office of Fair Trading (OFT). The Act requires credit and hire arrangements to be set out and to contain information that assists the consumer to be fully informed about the details and obligations of the agreement being entered into. The Act relates to agreements with individual consumers as opposed to business to business contracts.

Contract hire

Contract hire is a fixed term agreement for the rental of a car at a pre-agreed fixed monthly cost over a pre-agreed period and mileage (e.g. 36 months/60,000 miles). The car is returned to the funding company (Lessor) at the end of the period. The agreement will include road fund licence and also frequently the provision of services such as maintenance. The vehicle ownership is with the funding company, so the vehicle remains off the fleet operator customer’s balance sheet.

Contract purchase

Contract purchase is a deferred purchase agreement normally with a balloon payment. The rental profile is structured in many cases to satisfy the buyer’s cash flow requirements. The agreement may include services such as maintenance, and/or may include a guaranteed minimum resale value offered by the funding company. The vehicle ownership remains with the fleet operator (customer) who also incurs the risks and rewards of ownership. The vehicle remains on the fleet operator’s balance sheet, which can be advantageous for cash rich companies seeking tax advantages.

Corporate Manslaughter

A company may be found guilty of corporate manslaughter if it causes a person's death because of the grossly inadequate way in which its activities, including work related driving, are managed. If found guilty, the company may be subject to an unlimited fine, a court order to remedy a particular failing and/or be required to publicise the offence in a manner specified by the court.

D

Driver Training

Driver training courses can play an important role in a company’s health & safety policy. There are both seminars and on the road training available. They can be used for general road safety training or as remedial training for individual drivers to tackle issues such as persistent speeding offences.  As well as improving a company’s health & safety record, they can support cost savings on the fleet, including reducing fuel consumption, vehicle wear and tear and motor insurance.

Duty of care

The duty that an organisation needs to exercise to ensure the safety of any person concerned with its activities. In the context of road safety, this can involve both the organisation’s employee drivers and anyone affected by its work related driving.

E

Economies of scale

Relate to the ability of a fleet management company to use its buying power to obtain discounts and favourable terms on vehicle acquisition and the purchase of supplies and services. These benefits are passed back to the customer.

Employee Car Ownership Scheme (ECOS)

ECOS offer a cash alternative to contract car hire and outright purchase, allowing an employee to spend a certain amount of cash, determined by their employer, on a car of their choice through monthly payments. The employee signs a contract with a car leasing company to purchase the vehicle over a set period and mileage.

Typical agreements run for two or three years and include servicing, maintenance, road tax, breakdown recovery and insurance with the provider committing to buying the vehicle back at the time of the final instalment. Employees are often given the option of buying the vehicle at the end of the agreement but this should be done on the understanding that the vehicle is used as a second car rather than for business (with an eye on corporate responsibility).

The tax rules for ECOS are complex, but employees using this type of scheme are exempt from company car benefit-in-kind tax as the title of the vehicle passes to the driver under a credit-sale agreement. Employee car ownership drivers also qualify for HM Revenue & Customs approved mileage allowance payments scheme (see AMAP).

Employer’s class 1A national insurance contributions

A charge applied to the taxable benefit of a company car and fuel. The rate is 12.8% for 2003/04. This is payable by the employer if the car is available to the employee for private use.

Expensive car

A car that costs more than £12,000. Businesses currently face tax relief restrictions on cars costing over £12,000. The “expensive car rules” were originally introduced by the Inland Revenue (now HM revenue & Customs) in 1961 as a benefits charge on luxury cars.

F

Fair Wear & Tear

A contract hire agreement will stipulate that that the vehicle is required to be returned to the lessor in good condition, with fair wear and tear relative to its age and mileage. The BVRLA (British Vehicle Rental & Leasing Association) publishes a Fair Wear & Tear Guide that most member fleet management companies use as a guideline. The BVRLA operates a conciliation service for disputes that cannot be settled between its members and their customers.

Finance lease

A finance lease spreads the capital cost of vehicle acquisition over a pre-agreed period, when the vehicle reverts to the funding company. The fleet operator carries the residual risks/rewards, which is frequently reflected in the final “balloon” payment to the funding company.  Vehicle ownership remains with the funding company, so the vehicle is treated as off balance sheet for accounting purposes.

Fleet management

The provision of outsourced services by a fleet management company – these can include vehicle and driver administration, maintenance and vehicle disposal. Services can be provided for vehicles owned by the company itself or by the supplier.

Fuel card

Fuel cards are similar to credit or debit cards, to be at filling stations to purchase either fuel only or other items if allowed for within the purchasing restrictions.  Benefits include access to wide filling station networks for employee drivers and online reporting systems to assist companies in cost management, analysis of fuel usage and fraud prevention.

Fuel scale charge

Where an employee is provided with free fuel for private use, this is regarded as a taxable benefit. Employer’s National Insurance contributions will also be incurred. To provide free fuel to employees, companies need to advise HM Revenue & Customs by completing forms P46 (car), P11D and P11D (b).

Fully taxable business

One that is registered for VAT and is able to recover all the VAT, incurred on purchases used for business purposes.