The advent of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) has resulted in general increases to a vehicles published C02 g/km. When these are combined with the year on year increases in the levels of benefit in kind (BIK) taxation rates the traditional company car is becoming less tax efficient. An alternative to this is the employee car ownership (ECO) scheme .

What is ECOS?

For employers that want to provide a car benefit to their employees, ECO scheme is a tax efficient way of doing so.

A viable alternative to simply providing a company car, the overall scheme can be altered to provide the exact level of benefit that you want to give to your staff, offering great versatility and flexibility for budget purposes.

Under the terms of an ECO scheme, an employer ‘sells’ their employees cars under a credit sale agreement. This agreement should specify mileage and contract term and typically includes a full maintenance package.

The agreement can be structured in a number of different ways but allows the individual to make payments under the terms of their ECO scheme for the duration of their contract.

Once the term expires, the agreement can offer different rights but typically you could expect for an employee to be able to buy the car outright by settling the rest of the finance. The employee should be given to decline to pay off the existing loan and instead automatically ‘sell’ the vehicle back to the company providing the finance.

This may sound like a more complicated method of providing a car to employees, but it offers a range of benefits which aren’t available under different schemes.

The advantages:

Setting up an ECO scheme can result in significant savings for both the company and the employee and is a very viable alternative to providing a company car.

The exact financial nature of the benefits that an ECO scheme can bring depend on exactly how it was structured and set up. Some of the factors which can influence its overall financial benefits include:

• Private fuel provision
• Business mileage profile
• Total mileage profile
• Employee marginal rate of tax profile
• Level of car benefit already being provided

Once an ECO scheme is in place, a company will not need to pay NIC on the scheme whilst the employee will not be taxed as having a company car and won’t be taxed on the private fuel benefit.

The tax that the employee would have been liable to pay if they had a company car will be directed towards paying for the overall cost of the car, creating a genuine saving.

Another way to maximise the benefits available is the use of approved mileage allowance payments (AMAPs). AMAPs apply to cars purchased under an ECO scheme and are free of both NIC and tax, making it a simple way to deliver more savings via the use of an ECO scheme.

Conclusion

The inherent nature of an ECO scheme is that it is individual to each company in the tax benefits it offers and the financial implications of such, but regardless of how it is set up, an ECO scheme offers great potential to create savings for both employer and employee. An easy way for reliable transport to still be made accessible, an ECO scheme provides an employer with a greater degree of control about the level of benefit they want to give to their employees, putting them quite literally back in the driving seat.