What about the savings?
The key is to have a thorough understanding of any existing company cars before you start because then you will be sure that you can make savings that’ll make it all worthwhile. As to what those savings can amount to, let’s take a look at an example.
A 45% tax paying SME director drives 20,000 miles a year in an Audi Q7 3.0 TDi 204 Quattro SE Tip Auto on a 4 year change cycle. 15,000 are business miles.
In the first year the cost of providing the Audi as a company car would be £14,393 – £57,809 over the 4 year cycle. This includes the cost of rentals, maintenance, Class 1A NICs on the car BIK, Corporation Tax disallowance (the car emits 189g/km CO2), disallowed VAT, fuel, insurance and something for admin.
An ECOS budget to keep the director salary neutral is £9518 in the first year, and £37,820 over the 4 year cycle. This includes the AMAPs, a net salary top up (to meet neutral budget each month), tax and NICs, Employers NICs, fuel on business mileage and management fee for the scheme.
The net first year saving is £4875 and over the 4 year cycle it’s almost £20,000.
The numbers can work just as well with cars with lower emissions and staff paying lower marginal tax rates if the business mileage profile is high enough, although the lower the emissions and price of the car, the lower the savings will be.
There will also be some situations where an ECOS can work out more expensive than a straight company car provision. So beware.
In conclusion, ECOS is not a panacea, but it can be a useful and cost effective option for SME employers.
Most businesses will probably need a combination of ECOS and a company car scheme that allows employees to have a choice of cars that lie outside any contract hire selections at no more cost to the business. If flexibility and value are important – then think ECOS.
