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ADVANTAGES

DISADVANTAGES

EMPLOYEE

1. Fully maintained vehicle without the costs associated with ownership.

1. May have to pay more tax based on actual business kilometres.

2. Only cash outflow is fringe benefit tax payable on a monthly basis according to the latest tax rates.

2. No asset is acquired.

3. Can upgrade to a better car (if allowed by the company) by contributing to the cost by sacrificing a bonus or salary increment.

3. No ability to trade in the vehicle at a profit.

4. Car replaced regularly in terms of the employer's policy.

4. Vehicle selection tends to be restricted on employment grades.

5. Allowed to purchase the car at replacement at a preferential price. This benefit is taxable.

5. Company replacement policy not always structured properly.

6. Fuel is paid by the company.

6. Responsible for maintaining a log book to justify usage.

7. Fixed PAYE calculation based on price.

7. If business usage is 20% or less than total annual kilometres, then 80% of the taxable value of the vehicle has to be added to the remuneration.

8. Tax is calculated at 3.5% of the vehicle purchase price including VAT.

EMPLOYER

1. Lower cost as buying power will result in bigger discounts on vehicles and parts and lower finance charges.

1. Burden of total vehicle and driver administration and related operating costs.

2. Company vehicles operate to required fleet management policies and standards.

2. Replacement of vehicles increases costs and requires additional investment or borrowings.

3. Maintenance Plans and service plans can used to reduce costs.

3. Accurate budgeting difficult.

4. Company controlled accident management. Ability to self-insure the fleet in order to reduce costs

4. Certain employees will not look after the vehicles as well as they may look after their own.

5. Good control on fuel, maintenance and tyre costs.

5. Have an asset to dispose of or reallocate when an employee leaves.

6. Good depreciation control in terms of purchasing and disposal.

6. A properly trained fleet manager is required.

7. VAT inputs claimable on maintenance costs, insurance, Interest and any other operating costs.

8. Consistent control in terms of AARTO and related driver issues

ADVANTAGES

DISADVANTAGES

EMPLOYEE

1. Usually able to choose the vehicle based on the allowance. Certain model restriction may apply.

1. Assumes the full risk of car ownership i.e. repairs, accidents and resale. These costs are increasing at about 15% a year. The company does not always take this into account.

2. Has ownership and has the benefit of the resale value (profit) without tax provided the original transaction was structured correctly.

2. May find difficulty in obtaining finance or usually has to pay high interest rates unless group scheme implemented. RVs in the financial agreement are usually set a maximum of 35% by the bank.

3. Tax payable is based on the current tax allowance tables.

3. Has to administer his allowance with care and keep accurate record of kilometres travelled and expenses.

4. The higher the kilometres driven on business the less tax is usually payable.

4. Employer may tend to “save” by paying an allowance which could be less than the actual cost of operating the vehicle.

5. Expenditure of allowance is under the drier’s control.

5. Could have difficulty in disposing of vehicle when wishing to move from the company paying an allowance to a company providing a company car.

6. Must drive at least 3 500 kms a month to obtain the tax benefit over a company car.

7. Private use fixed at 18 000 kms per year.

8. Monthly cash flow is reduced due to monthly PAYE calculation based on 80% of allowance.

9. Tax rebate only obtained about six months after the tax year end.

10. Careful cash flow management required to ensure that vehicle operating costs are fully covered.

EMPLOYER

1. No capital required to finance vehicles.

1. Lose control over quality of vehicles.

2. Vehicles can be financed off balance sheet.

2. Overall costs are about 22% higher than providing company cars.

3. The allowance may be fixed annually permitting more accurate budgeting. For example, an allowance for fixed costs with your company providing a petrol and maintenance plan.

3. Many personnel problems emerge because of poor cash management related to maintaining and operating the vehicle.

4. The administrative burden is reduced and the maintenance burden eliminated.

4. Can lose control over kilometres driven and fuel costs. More so if a fuel card is issued without restrictions. Fuel management is a major problem due the ever increasing fuel prices.

5. There is no fleet management requirement other than an effective HR policy related to the drivers.

5. Company image can be adversely affected.

6. If optional, administration is actually increased. Effective HR policies are essential.

7. Not easy to set acceptable allowances due to the operating cost escalations of about 15% per year. They also need to be regularly reviewed.

8. Perks tax legislation increases administration in terms of payroll administration.

9. No VAT inputs claimable on maintenance and insurance if full allowance is paid direct to employee.

10. The company is still totally responsible to ensure that employees abide by legislation and the company has to enforce employee compliance in terms of current legislation.