Employee Car Ownership (ECO) schemes differ from company cars in one fundamental way: the car is owned by the employee; not the company.
In all other ways, the car is run in a similar way to a company car.
The switch in focus from the company to the driver means two further differences: the car is the driver’s choice; and, because the employee owns it, there is no benefit-in-kind company car tax liability.
An ECO scheme works by giving employees a monthly salary allowance to spend on a car of their choice. The allowance is worked out individually for drivers and is based on their car grade, tax bracket and annual business mileage. For this monthly fee, the driver also gets servicing, maintenance, breakdown cover, and so on – in fact all the convenience of a company car.
One additional feature of an ECO scheme is that employees are given a much wider choice of cars, and they may be given the further option of trading up (with a cost) or trading down (with a saving).
ECO is fundamentally different to offering employees cash allowance instead of a company car. It places control around how the allowance is spent and supports the employer’s duty of care. This differentiates ECO scheme drivers from the ‘grey fleet’ of employees who use their private car for business.
Employers may introduce additional controls for health and safety reasons, or they may choose to add incentives to drivers: for example, additions to their monthly allowance if they choose more environmentally friendly vehicles.
With an ECO scheme, there is no risk for the employee. Built-in insurances protect them from loss of the vehicle and changes in personal circumstances. The final value of the vehicle is also guaranteed, allowing the employee the opportunity to renew their contract with the provider for a completely new car, as well as offering them the choice of either handing the car back or buying their current ECO vehicle to keep or sell it onwards.
Although ECO may not be suitable for every fleet (or for every vehicle in a company’s fleet) it now has the endorsement from the HMRC that BIK company car tax does not apply. So it may be worth exploring as a tax efficient driver solution for today’s environment.
Further information about ECOs
- Information about ECO was provided by Nick Sutton, Chairman of Provecta Car Plan. Provecta has subsequently been purchased by Zenith
- For more about ‘grey’ fleet risks read our special report Small businesses: putting employees at risk behind the wheel
- Also read The law and Corporate Manslaughter
