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Whole life costs: Getting the bigger picture

Written by | Posted on 19.06.2017
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Whole Life Cost. The sum of all the variable costs associated with running a vehicle; including vehicle depreciation, the cost of servicing and downtime, insurance costs, fuel spend, mileage amounts and taxation – in all its guises.

We’re always surprised how many businesses don’t understand the whole life costs of their vehicles. With many thinking the only cost they need to be aware of is the big number on their invoices each month.

But that’s not even half the story. We’ve compiled a list of seven other factors you need to understand in order to get to grips with whole life cost fleet management.

1.Depreciation

We all know that the more you use a vehicle, the more its value depreciates. But just driving a car out of the showroom significantly reduces its value. In fact on our recent CarCost Index study revealed that Depreciation accounts for 37% of the total cost of fleet and is the largest expense related to car ownership.

An often overlooked factor when buying a new car or van is depreciation. Yet it’s also the single biggest factor affecting running costs.

2. Service maintenance and repair (SMR)

Keeping your fleet shipshape makes sense for a whole lot of reasons.

You’ll reduce vehicle off-road time – and from a Duty of Care perspective you’ll sleep easier knowing that all your vehicles are in roadworthy condition.

It goes without saying that it takes some careful management to keep on top of everything – but keeping Service Maintenance and Repair under your jurisdiction makes sound financial sense.

3.Fuel

Paying for fuel seems an obvious expenditure. But with rising petrol and diesel prices, it’s no wonder that our recent study found Fuel price volatility was listed as the number one challenge facing fleet managers today.

Fuel is typically the second largest cost for fleets (second only to acquisition costs). Controlling costs requires selecting the right vehicles – even small improvements in efficiency can deliver large savings over the thousands of miles these vehicles cover annually.

It’s why it’s important to make all the savings you can by ensuring you have the most efficient vehicles and are using the right fuel reimbursement method.

4. Insurance

Providing your vehicles with the necessary insurance cover is an outgoing you just can’t avoid.

At the same time, being able to spot those vehicles and drivers that are upping your premiums is a sure-fire way to reduce spending. The only drawback is that reviewing all that data can be a time consuming job.

5.Employee benefits

Employee benefits are a great way to attract and retain the right people for your business – but the depending upon how schemes are structured – costs of providing them can quickly mount up.

Despite the changes announced in the Finance Bill, Salary Sacrifice for Car Schemes still represent a cost-effective way of driving a brand new, insured, fully maintained vehicle – find out more here.

6.Mileage

Balancing your business mileage allowances can be a tricky art, but one that has the potential to save you money.

Annual Mileage Allowance Payments (AMAPs)

AMAPs are the maximum levels at which an employer can pay business mileage allowances to grey fleet drivers or cash takers without a tax liability. They are free of NICs and tax up to the maximum tax free allowances of 45 pence per mile for the first 10,000 miles each year and 25 pence per mile above 10,000 miles*.

Advisory Fuel Rates (AFRs)

Company car mileage is reimbursed, tax and NI free, at Advisory Fuel Rates (AFRs). HMRC sets rates based on the car’s fuel type and engine size, issuing updates every quarter.

Carefully reviewing and managing your employees’ driving distances will also give you a better idea of where savings can be made.

7.Taxation

Paying close attention to the finer details of tax legislation can pay off in a big way.

Reclaiming VAT on leased company vehicles  takes a sizeable bite out of your fleet costs, and Corporation Tax payments can also be minimised  by switching drivers out of high emission gas guzzlers to lower emission models.

If you provide company cars to your employees you will pay national insurance contributions on the benefit value. This varies a lot from car to car, based on their P11D value and CO2 emissions, so selecting the most efficient cars can save you money.

Overall Whole Life Cost

Together, all of these factors combine to affect your overall Whole Life Cost.

Without carefully weighing up each element you may end up paying more than you realise – and miss out on substantial savings. Letting the experts stay on top of each individual component of fleet cost management could not only break down your costs to one easily digestible figure but also make life less complicated.

How we can help you

You can take advantage of LeasePlan’s expert knowledge on all areas including taxation, accounting and financial products. We will align recommendations to meet your business strategy, while delivering measurable value, quantifiable benefit and intelligent analysis.

If you are a customer and want to find out more, please contact your Account Manager, alternatively you can get in touch here.


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