Fair Allowances for Staff Cars
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IN answer to requests from readers, I propose .to suggest payments which should be given to those representatives . who use their own cars in connection with their employers' business.
I dealt with this subject some years ago but as costs have increased considerably since that time the allowances suggested then are not applicable today.
There are several methods of calculating these allowances and I shall deal with only two, one being a straightforward assessment of the operating costs, the representatives being paid the full amount. So far as the company from whom the original inquiry came, the question related to a representative who bought his own car and who was to be reimbursed for any expenditure incurred when it was used in their business.
1 propose to limit my investigation to cars of 10 h.p. and 12 h.p. I was also asked to give information showing how my recommendations were made.
Tables 1 and II are reproduced from the earlier article • and the explanations may usefully be given in respect of these two tables. One aspect of the matter which makes it different from the articles I usually write is that no provision is made for profit or for establishment costs. That there should be no provision for profit will be fairly obvious. As regards establishment costs, I was, at first, inclined to include that item in the calculations, because I always claim that there must be establishment costs, but I realized that that would be a matter for thc employer, not for his car-using representatives.
Calculating Depreciation
The first Table relates to a 10 h.p. car on which, at the time the article was written (1951), the initial outlay was £600. The first thing to do is to deal with the depreciation, which calls for some explanation to those readers who do not follow my articles closely.
The first thing is to deduct from the initial cost of the vehicle the cost of a set of tyres. The reason for this is that provision is made for the depreciation of the tyres elsewhere in the cost schedules; to leave that cost in the capital amount on which the depreciation is assessed would be to provide for the cost of tyres twice over.
In this case, the figure is £22. Deducting that from the initial cost of the vehicle leaves £578 as the net value of the vehicle, less tyres. .
Next, in providing for depreciation of the vehicle it is necessary to consider what is termed the residual value, which is the amount the vehicle will fetch in say, five years, when it is to be replaced by a new car. In this case I assumed this to be £58. That must be deducted from the 1578, quoted as the value of the vehicle less tyres. The net value of the vehicle and the figure to be used as the basis for calculating depreciation is thus 1520.
We can now proceed to set out the operating cost of the vehicle in detail.
First, the fixed costs which arc those items which do not vary irrespective of the annual mileage run by the vehicle. The first item is depreciation, and it is assumed that the vehicle will be replaced in five years. That means that the total amount-£520-must be divided by five lo give us the figure for the depreciation per annum. That is £104.
As regards the other items-insurance, garage rent and interest on capital outlay, they need no explanation except for this recommendation: the reader should use his own B28 figures if and when they differ from those in the Table which are averages. For that reason they must be regarded as subject to correction in individual cases.
There may be some criticism of the figure I give for interest, especially the percentage on which my figure is based. The 2 per cent. is really assessed on a percentage of 4 to 5 per cent., which is reduced annually because the vehicle value diminishes year by year. Two per cent. is thus an average.
Running costs should need no explanation. The only one about which there is likely to be any queries is that concerned with maintenance. The amount debited is an average figure, derived from the same source as the figures quoted in "The Commercial Motor' Tables of Operating Costs."
The totals, fixed charges and running costs, arc important at the moment only for purposes of comparison, it being borne in mind that the data refers to 1953. The total of fixed costs is £158 10s. per annum, and the running costs 2.76d. per mile.
Figures for a 12 h.p. car arc given in Table II, and the data for costs current in f/53. The totals arc:—Fixed charges, £177 10s. per annum and the running costs, 3.15d. per mile.
Now for today's figures. Table III relates to a 10 h.p. car. The total of fixed charges is £163 10s. and is thus shown to be 2+ per cent, higher than in 1953. The running costs total 2.93d. as compared with 2.76d. in 1953, an increase of 7 per cent. approximately. Table IV gives present-day data for a 12 h.p. car. To explain the method of ascertaining the full allowances, I will take Table IV, relating to the 12 h.p. car.
It will suffice to deal with the car which is covering 9,000 miles per annum, in the service of the employer. The totai cost is derived from the fixed costsplus the running costs. The former is £183 per annum, and the latter 3.34d. per mile, or £125 5s. per 9,000 miles.
Altogether, the cost is £308 5s., which is equivalent to 8.22d. per mile. If the vehicle covers 12,000 miles per annum the cost per annum is assessed by multiplying the running cost per mile-3.34d.—by 12,000, which is -£167 and adding in the £183 kir fixed costs. The total is £350.
Divide that figure by the annual mileage—l2,000and we get 7d per mile as the proper allowance. The percentage rise varies with the mileage per annum. In 1953 the figures were £177 10s. fixed costs and 3.15d. per mile, so that the travelling allowance, based on 9,000 miles, was '1.88d. per mile. The increase is approximately 4 per cent.
The company who made the original inquiry asked me to lay out the figures in a particular way and this is shown in Table V which, I think, needs some explanation.
Annual Allowance Plus it is the custom, I was told, to pay the car owner a fixed annual allowance, plus 2d. per mile to cover petrol and oil. The fixed allowance was designed to cover a specific annual mileage-9,000 in the case of the 10 h.p. car and 12,000 in the case of the 12 h.p. car. An extra allowance was paid annually for every mile over the 9,000 or 12,000 as the case might be.
Taking first the data relating to the 10 h.p. car. I calculate that the owner should receive a total of 1262 per annum (see Table I) which is the total annual cost for a 9,000-mile year as shown in that Table. In order to arrive at that amount I took fixed charges per year to be £158 10s. and added 0.76d. per mile. The latter figure is arrived at by deducting the 2d. per mile for petrol and oil from the total running cost of 2.76d. per mile. .Thus 9,000, multiplied by 0.76d. gives mc £28 10s. which, added to the £158 10s., gives /187 as the annual allowance.
Similar calculations, using the figures relating to the 12 h.p. car, arc also set out in Table V. S.T.R.