For several years increased global demand and political instability has lead to rapidly increasing crude oil prices. When taken together with increased direct and indirect taxation fleets have faced significant increases in fuel costs. Unfortunately, despite the abatement of fuel duty rises, this trend looks set to continue.
As fuel is one of the most significant fleet costs careful attention should be given to the how fuel is bought and used. However, by implementing some basic data collection, analysis and planning, fleet managers can dramatically mitigate these increases.
The taxation of company cars according to their CO2 emissions has encouraged many manufacturers to develop more environmentally friendly engines, which, in turn, aim to be more fuel-efficient.
Progressive businesses are also addressing their own response to the threat of climate change by replacing physical meetings with new technology such as web conferences in an effort to reduce business mileage. Where business journeys are, however, necessary fleet managers should consider how they can be made as environmentally friendly as possible by choosing more economical vehicles and improving fuel economy.
Each business’ approach might differ, but the trend is clear – it makes great sense for fleets to control their fuel budget. Government led initiatives, such as those run by the Energy Savings Trust, can be incorporated in to fleet management to encourage more responsible and environmentally friendly fleet vehicle use.
Capturing fuel cost data
There are just a few basic elements to good fuel management. Most of these are directly related to the fuel use itself; the volume purchased, the distance covered and the cost. In a perfect system all of these would be recorded and everything needed to manage fuel could be calculated.
Additionally, whilst knowing the total cost to the business is an obvious advantage, checking fuel consumption on an individual vehicle basis would help to identify areas of poor performance and possible mechanical problems with a vehicle.
Unfortunately in many cases fuel management is often seen as a “nuisance” or as “unnecessary”. Part of the problem is that there are so many “minor” transactions. For example, a typical fleet car could generate one or two forecourt bills every week and, for many fleets monitoring numerous, low value costs is simply too onerous. But as fuel costs rise monitoring fuel expenses becomes increasingly necessary but could prove extremely cost-effective. The key to managing fuel costs is collecting the right data. By capturing all three data items every time the tank is filled a fleet manager will have a complete picture of the fuel performance of the individual vehicle. Using a fuel card is the easiest way to achieve this. It provides the quickest, cleanest, cheapest and most accurate method to capture, manipulate and report on fuel performance. A good fuel card system is one which is widely accepted, needs both forecourt and driver input of relevant data on each visit, and provides periodic reports on the performance of the fleet by individual vehicle, cost centre or other grouped levels.
Understanding and using fuel data
Regardless of whether a fleet manager runs a fuel data recording system in-house or uses a third party supplier the incentive is that, armed with the right data, they can start making efficiency savings; without the data, cost control is lost.
Research suggests that more than a quarter of drivers do not think that inflating their business mileage to disguise private mileage, or simply exaggerating their expenses, is wrong. Drivers also make mistakes and often don’t care about buying fuel at the best prices, especially if they have a fully expensed fuel card. Good data capture can help to reduce fraud and can be used to educate drivers and encourage them to seek out garages selling cheaper fuel.
Finally, the data collected may be useful elsewhere in the business; for instance, it could assist the finance department to deal with an HMRC enquiry, or it could be used by the HR department to encourage drivers to opt out of heavily taxed free fuel schemes.
As all parties try to reduce the impact of transport on the environment alternatives to petrol and diesel have been developed. These can offer a range of advantages, but like any new technology an understanding of the potential pitfalls is essential:
- Bio-fuels and LPG: These technologies have not been as widely adopted in the UK as in some parts of Europe. A combination of lack of experience and uncertainty about infrastructure has made many fleets wary of adopting these alternative fuels, despite the advertised benefits in cost reduction.
- Hydrogen: Potentially the primary fuel of the future, without a refuelling infrastructure it is hard to predict when hydrogen will become a mainstream option.
- Electric: Supported by government grants and tax incentives arguments in favour of electric cars can look quite compelling but, until range can be extended and the cost of production addressed, electric vehicles are only really suited to a few special applications.
- Hybrids: These cars use a combination of a smaller, high-efficiency combustion engine and a battery-powered electric motor. The on-board batteries are charged when the engine is idling and when the brakes are applied, and smart electronics balance the use of each power-source to suit roads and conditions. Performance is good in urban motoring but can be less attractive if the car is used mostly on faster open roads.
- Other technologies: As manufacturers try to stay ahead of the market other technologies and blended solutions have started to appear, ranging from simple changes in production techniques that reduce weight and air resistance to plug-in hybrids and range extenders, where charging points are used to provide an external energy source for an electric battery that works in tandem with a conventional engine to overcome the range anxiety typically associated with pure electric vehicles.
Reimbursing the cost of business fuel
In practice, employers use many different ways to reimburse the cost of business fuel used by their drivers in company cars. While it is possible to repay the exact cost this can be both time consuming and complex for a fleet operator.
Since 2002 it has been possible to use HM Revenue & Customs’ (HMRC) Advisory Fuel Rates (AFRs). These rates are intended to reflect actual average car fuel costs at the time they are set and are revised on a quarterly basis by HMRC to reflect fuel price movements. AFRs may also be used by employers to calculate the amount that employees should reimburse to cover the cost of private fuel used in a company car.
Where an employer allows employees to use their own cars for business use AFRs cannot be used. In this case HMRC allows employers to pay a set mileage rate that reflects both the cost of fuel and the running costs of the car. These tax-exempt payments are known as Approved Mileage Allowance Payments (AMAPs).
Employers who pay mileage rates of any kind must ensure that drivers do not see them as a way of increasing their income by driving unnecessary miles. Over the last few years many employers and HMRC have started to focus more on business journeys and expenses and employers who have introduced robust controls are reporting a significant reduction in total mileage which considering the overall price of fuel has a significant impact on the bottom line.
For further information on mileage rates including the rates currently available please refer to HMRC’s website at www.hmrc.gov.uk/incometax/relief-mileage.html