Workbench Logo
Workbench Logo
Workbench Logo
Workbench Logo
Workbench Logo

‘Increasingly punitive’ BiK taxes drive ECO comeback

Employee Car Ownership (ECO) schemes are set for comeback as rising company car taxes push drivers to find more cost-efficient alternatives.

Maxxia director Gordon Calder-Jones

So says vehicle and asset finance specialist Maxxia Group, which says that for the right employers, ECO schemes offer significant cost reductions over a company car, but still provide sufficient risk management safeguards and control over the cars on offer.

ECO schemes came to prominence as long ago as the 1990s following the introduction of the current emissions-based system of company car taxation as a way to mitigate the increased Benefit in Kind charges, but they have largely flown below the radar in recent times, even though there are still a number of employers who operate such schemes for their employees.

Yet, according to Maxxia, changes to the rules affecting salary sacrifice car schemes and a seemingly endless tide of rises in Benefit-in-Kind (BIK) taxes for company car drivers make the resurgence of ECO schemes more likely, building on similar comments from BCF Wessex at the start of the year.

When structured right, such schemes are not subject to company car benefit as the employee, not the employer, owns the car. The employee purchases the car under a credit sale agreement and meets the monthly finance and running costs using a mixture of the income tax savings from no longer having a company car and the maximum tax-free mileage reimbursement for business journeys under the Government’s Approved Mileage Allowance Payments (AMAPs) scheme.

Currently, this is 45p per mile for the first 10,000 miles and 25p per mile thereafter for using a privately owned car on corporate business, all of which are deemed to be tax free. Some companies also may provide an employee top-up via the pay-roll, which is subject to income tax and employee’s NIC in full. Employers also have to pay Class 1 NIC at 13.8% on the employee top-up, while it is possible to recover VAT on the fuel element of the full business mileage rates, provided receipts are kept.

Vitally, such schemes also bring still provide sufficient risk management safeguards and control over the cars on offer – which is not always the case with employees taking the cash option. Recent HMRC figures show the number of UK employees taking company cars fell by 20,000 during the last tax year, as rising tax burdens continue to take their toll on demand, with employees increasingly turning to personal contract hire instead, as shown by latest BVRLA figures. Yet, as Maxxia Group has previously warned, opt-out drivers can increase costs and exposure to risk.

Maxxia director Gordon Calder-Jones said that ECO schemes can bring a best of both worlds approach in terms of reduced costs compared to company cars but still with risk management controls in place. However, he added that such schemes are not relevant to all drivers.

“Key to this is that drivers need to be travelling sufficient levels of business mileage to make the scheme viable. If there are few business miles being driven, then the scheme becomes less attractive,” he explained.

“Given the increasing tax costs of the conventional company car, with further rises in the pipeline, and the changes to the rules governing salary sacrifice car schemes, it does seem to be an appropriate time to look at the potential benefits of introducing an ECO scheme,” he added.

“Of course, it is only worth considering if such a scheme can work within your drivers’ profile and their business motoring requirements. But, for a number of organisations and their drivers, ECO schemes may provide a solution to an increasingly, confused corporate motoring scene.”

For more of the latest industry news, click here.

Natalie Middleton

Natalie has worked as a fleet journalist for 16 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. As Business Editor, Natalie ensures the group websites and newsletters are updated with the latest news.