Fleet management costs

We untangle the myriad of fleet management costs you will have to budget for, including tax, fuel and insurance

The main factors affecting fleet management costs are the size of your fleet, the type of vehicles you need, and the level of functionality you require.

This article will cover the major costs involved with running a fleet, including:

In this article you will learn:


Business fleet tax

Tax is an ongoing cost for fleet managers. Vehicles are subject to various different taxes dependent on their age, make, model, and a variety of other factors.

Vehicle Excise Duty (VED)

Enforced by the Driver and Vehicle Licensing Agency (DVLA), VED is a tax on the use of public roads. Starting from April 2019, VED for vehicles will rise in line with inflation. It is based on:

  • Vehicles registered before 1 March 2001 based on engine size
  • Vehicles registered on or after 1 March 2001 – based on CO2 emissions and fuel type

Electric vehicles, vehicles used by disabled passengers, and vehicles used for agriculture, horticulture and forestry are exempt from VED.


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Benefit-in-kind (BIK)

BIK is paid by drivers of company cars, as part of their remuneration package for receiving the benefit of a company car. The cash value of the car is added to your salary, and a tax is taken off the final sum. The amount is based on:

  • CO2 emissions
  • Make and model of vehicle
  • Fuel type
  • Vehicle use

National Insurance Contributions (NICs)

As an employer, you will have to pay NICs for every vehicle you provide to an employee for personal use. NICs are based on:

  • P11D value – how much company car tax needs to be paid based on the list price
  • BIK


Calculate vehicle tax rates at Gov.uk.


Fuel for business fleets

Fuel is a major contributor to the overall cost of your fleet, but it can vary wildly depending on current fuel prices, the condition of your vehicles, and how they are driven.

Diesel used to be the top choice for fleet owners, thanks to its superior efficiency and lower CO2 emissions. But it’s been under the spotlight over the last few years for its harmful emissions, which can cause asthma attacks and even contribute to lung cancer. But as modern diesel cars have filters, this is contested by the motor industry.

Nevertheless, sales of diesel-fuelled cars have seen a sharp decline (-17% between 2016 and 2017).

Read more: Why ditching diesel may not be best for your company cars

Petrol:

  • Cheaper to buy
  • More responsive engines
  • Produces less nitrogen dioxide
  • And fewer harmful particulates

But…

  • Vehicles depreciate faster
  • And produce higher levels of CO2

Diesel

  • Around 25% more efficient than petrol
  • Lower costs over the lifetime of the vehicle
  • Engine lasts longer
  • Lower CO2 emissions

But…

  • More expensive than petrol
  • Produces harmful emissions
  • More expensive to insure

But how does it affect you?

One thing you need to be aware of is that the method by which the government estimates fuel consumption per car has changed. The New European Drive Cycle (NEDC) has been replaced by the World Harmonised Light Vehicles Test Procedure (WLTP).

 

What is the WLTP?

The WLTP has been created to give a better indication of vehicle performance on fuel economy and emissions. It takes into account higher speeds, aggressive braking and acceleration, as well as optional equipment such as bigger alloy wheels and lower suspension.

Vehicles that have been through WLTP show around 20% higher consumption and emissions, which could put them in higher tax bands (such as BIK) and increase costs for your business.

Because testing is ongoing, VED and company car tax will continue to be based on NEDC figures until April 2020.

 

For the time being, these changes won’t have an impact your fleet. And more accurate government figures should make budgeting for fuel costs even easier than ever.

Fuel cards

Fuel cards are a flexible and efficient payment method that take the hassle out of paying for a fleet’s fuel.

Your employees use them like a credit card, with the bill settled at the end of every month. Small businesses can also use fleet cards to monitor vehicle consumption and restrict certain types of purchases.

Many providers offer contracts that can be tailored to the needs of your fleet, and there are a number of different pricing plans.

Costs

An annual card fee of around £18 is typical, but this can be lower or higher depending on the size of your fleet.

Some providers enforce a minimum spend of around £1,000 per month.

Find out more about fuel card costs here.


Fleet insurance

You are legally required as a business to make sure all your fleet vehicles are insured. Luckily, if you have more than one vehicle, there’s a fleet insurance policy out there for you.

Fleet insurance is a much better option for fleet owners, as it works out cheaper than insuring each vehicle individually. You’ll also save time on admin, but don’t forget to update your policy if circumstances change.

Most policies will set a minimum and maximum number of vehicles, and not all policies will cover all types of vehicles,.

Types of cover

  • Third party – this is the legal minimum amount of cover, and will protect others if an accident was the fault of one of your drivers
  • Comprehensive – one of the highest levels of cover you can get, this covers damage to your vehicles as well as others
  • Employers’ liability insurance – driving is dangerous, and you are legally obliged to have this policy in place to protect against illness or injury claims from employees
  • Goods in transit – an optional extra, this will protect your goods from loss or damage while they are in transit from one place to another

Reducing the cost of your fleet insurance premiums

There are several decisions you can make as a fleet owner to help reduce your premiums. These include:

  • Using electric vehicles – often considered safer by insurers, and therefore cheaper
  • Employing better/older drivers – drivers with a clean record and those aged over 25 have lower premiums
  • Sending drivers on training courses – to improve safety and efficiency of driving
  • Installing dashcams – fit them on the front and back for a visual record of everything that happens to your vehicle, to be used as evidence in the event of an accident
  • Keeping your vehicles in good condition – with regular checks on tyres, brake pads, oil etc.
  • Installing a telematics device – this can collect a variety of driver metrics to see how safe they are and reduce premiums


Fleet service, maintenance and repair (SMR)

Another major contributor to total cost of ownership is service, maintenance, and repair (SMR)

No matter how careful and economical your drivers are, vehicles are complicated machines that need a bit of TLC every now and then.

Vehicles that aren’t subjected to a regular SMR regime pose a risk to drivers, pedestrians, and your business.

How you go about this will depend on whether you have leased or bought the vehicles outright.

Below, we look at four different SMR options to give you an idea of what would work best for your fleet:

Contract hire with full maintenance

This is the most commonly used option, whereby the lease company takes on the responsibility for maintaining the vehicles as part of the package. The pros of this are:

  • Consistent service to high standards
  • Reduces burden of admin for fleet owners
  • Fixed monthly cost
  • Everything from bulbs to batteries, exhausts to tyres included
  • Better deals negotiated by leasing company

However, you will be paying for maintenance whether you use it or not, and the true cost will be hidden within the overall lease rate.

Best for: a good option for large fleets that don’t have the resources to manage maintenance themselves.

Pay-as-you-go

This option is growing in popularity as vehicles grow more reliable, and require less regular attention. The pros:

  • Faster repair time
  • More control of maintenance for fleet owner
  • You only pay what you need to

The only major drawback is that it will require a lot more admin from you or someone in your company, taking up valuable time and resources.

Best for: companies that demand greater control of their vehicles and maintenance.

Using independent garages

Used by both hire and franchised fleets, the pros of independent garages are:

  • Cheaper than franchised dealers, with labour rates and lower prices for parts
  • Quicker than franchised dealers
  • More accountability

However, they can’t be used for warranty jobs, and they don’t have the capacity for larger fleets.

Best for: small fleets that can cope with the necessary admin.

Creating your own workshop

If you have the initial overheads for creating your own workshop, then you have the option of having complete control over maintenance and repairs. The pros are:

  • Complete control
  • Speedy repairs
  • Ensure the most exacting standards
  • Prioritise the most important jobs

This obviously requires a significant initial expense for building a garage, not to mention ongoing costs for staff training and equipment.

Best for: a large fleet that needs to ensure vehicles are out of action for the least time possible.


Fleet management software

Providing location services, as well as vital data on driving and vehicle use, fleet management software is an essential tool for fleet owners.

Research different providers to find which serves the needs of your fleet, and choose a plan that works for you.

Most providers don’t publish prices, but you can contact them directly for an individual quote that will be dependent on your fleet size and needs.

To give you an idea of the different pricing tiers for vehicle tracking software, we’ve broken them down below:

  • Entry-level vehicle tracking (one to 20 vehicles) – £10-£15/month
  • Mid-level vehicle tracking (21 to 50 vehicles) – £15-£20/month
  • Advanced-level vehicle tracking (50+ vehicles) £20-£30/month


Learn more about vehicle tracking costs.


Next steps

It can be bewildering to read about the costs involved with vehicle tracking and fleet management.

But a thorough understanding of these costs will help you to budget, and ensure you get the most effective and economical use out of your fleet.

That’s not to say there won’t be some surprises, but preparation is the key to success.