Employee Car Ownership Schemes
August 2006
ECOS Schemes aim to achieve the following objectives, which generally exempt the employee from the car benefit and car fuel benefit rules.
a) improve employers' profits by funding the business travel on the part of its employees in a more cost-effective manner than continuing to fund Company Cars. Improve Health and Safety procedures.
b) Provide employee drivers with net pay benefits, flexibility and more choice.
In some schemes, ownership of the vehicle is transferred to the employee at the start of the scheme. In others, (badly designed schemes), ownership is not transferred, but the car is not made available by reason of the employee's employment.
Where this has been the case, the Revenue will be interested to look at the following aspects of schemes to see if a tax charge applies:
1. Is there any tax charge in respect of a sale of the car at undervalue to the employee.
2. Is there any tax charge in respect of a resale of the car at overvalue by the employee.
3. Is the employee making good the full cost to the provider of items such as insurance, servicing and repairs, vehicle recovery assistance.
4. Is there a free or low interest loan.
If HMRC perceive that members of such schemes are receiving tax breaks that work against the government's plans for the environmental impact of cars, we are likely to see a tightening of the law in this area.
HMRC are currently reviewing car ownership schemes offered by employers that do not accord with HMRC approved procedures and are to report on the matter in the Pre-Budget Report 2006. (November 2006)
There are still opportunities to set up Car Allowance Schemes before Company Car taxation is increased yet again in 2007.
