Employee Car Ownership Schemes

Desk and glasses
Employee Car Ownership (ECO) schemes have been around for some time. However, they seem to have fallen out of favour with many due to their complexity and the need for strict tax compliance. Many schemes have been implemented and withdrawn over the years and many are still in place. Those who still offer ECO as an employee car solution tend to have suffered most of the pain and are now running slick schemes.

ECO can provide both your company and its employees with a tax efficient alternative to company cars. Unlike traditional company car schemes, with an ECO scheme the employee has legal ownership of the vehicle. Because of this, neither the employee nor the employer are subject to any company car tax or National Insurance contributions on the benefit in kind.

How does it work:

ECO schemes entail employers offering employees a monthly salary allowance to spend on a car of their choice. This allowance is generally based on the employee's grade, tax bracket and annual business mileage.

Vehicles within an ECO scheme are sold directly to employees through a credit sale agreement, with contract terms and mileage limits to suit them. Employees do not pay BIK tax, as is usually required within a traditional company car scheme. Rather, they make a personal contribution to the vehicle via payments deducted directly from their salary each month. As part of this payment, insurance, accident and breakdown cover and servicing of the vehicle are included.

Because employees legally own the vehicle, your company may benefit from the tax-efficient nature of business mileage reimbursement on privately owned vehicles, as well as making company car tax and NIC savings. For companies who have a large salesforce with high business mileage, the savings under an ECO scheme can be sizeable.

The benefits:

  • Employees have the opportunity to purchase their own car at competitive rates
    • Option to trade up by increasing personal contributions, or trade down and benefit from cash payment for any difference in vehicle cost and cash allowance (subject to policy restrictions)
    • Tax-efficient benefits of mileage reimbursement on privately owned vehicles 
    • Employees are not subject to Benefit in Kind (BIK) tax
    • Potential company car tax and national insurance savings for employers and employees
    • Vehicle servicing, maintenance and insurance are included in payments, for the life of the credit agreement
    • A flexible employee benefit at no direct cost or contractual risk to your company
    • Rewards staff with the chance to drive the newest car models

Having done quite a bit of work in the field of ECO (sometimes called SECOP - structured car ownership schemes) the savings can be significant. Recently we worked in a project for a large UK energy company and the savings were over 30% (based on their current fleet funding of contract hire (operating lease)). That said, one cannot underestimate the complexity of implementing an ECO scheme. We would always recommend a structured delivery approach and engage with all necessary stakeholders at the earliest opportunity.