Think before you say yes to free fuel - it might cost you more than it's worth
There was a time, when the Ford Cortina was king of the company car park, when there was no such thing as company car tax

Some background

Let’s make no mistake, a ‘company car’ is still a perk even if you do have to pay company car tax for the privilege.

Go back far enough and there wasn’t even a tax to pay on your company car, but all that changed when company cars started to be taxed as a benefit in kind and BIK company car tax was introduced.

In 1994 the tax regime changed from being based on engine size (which explained all those 1998cc engines) to business mileage thresholds. And that was when some clever accountant saw a way to minimise the tax both for employees who had company cars, and their employers who were obliged to make national insurance contributions on the BIK associated with the car.

The idea was to introduce Employee Car Ownership Schemes (ECOS), and though somewhat under the radar, they are still around today.

So how do they work, and could they work for your business?

ECOS were devised as a means of minimising the tax exposure of both employers and employees, following the introduction of benefit in kind taxes for company cars

When they were introduced there were teething troubles in structuring ECOS in order that they were compliant with the taxman’s demands – the Inland Revenue back then. Indeed there were one or two early adopters – big companies – who slipped up and were duly punished with huge penalties.

These served to whet rather than satisfy the taxman’s appetite,  and closer attention was paid to ECOS arrangements culminating in a review in 2003.  Today’s ECOS arrangements are defined by the guidelines that came out of this review – which leave very little to interpretation.

Typically, ECOS are adopted either by bigger businesses who want to avoid running a fleet of vehicles but still want to offer the benefit of a car to employees, and SMEs who like the flexibility they offer to key personnel.

Either way, done in the right context, an ECOS can save the employer thousands per car when compared with a typical company car renewal cycle, while staying at worst salary neutral for employees, and at best saving them a packet too.

In both cases those HMRC guidelines lay down the basic rules for an ECOS, even if the schemes themselves may vary.

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