ECOS are predicted to become popular with small businesses as firms strive to retain key staff and achieve cost savings during the recession. Brian Rogerson reports on this method of financing company cars.
AS small business budgets come under pressure, some companies look for cost savings in the company cars they run.
It is often tempting for directors to remove the unpredictable cost of running company cars and simply replace it with a fixed cash allowance.
However, this puts companies at risk: not all employees will spend their allowance on a suitable car; or drive it in a manner that complies with government Health & Safety and other legislation.
In reality, staff may select a vehicle that is totally unsuitable for their job. Or may fail to maintain or insure it adequately for work purposes.
One way for small businesses to overcome the lack of control issue, yet achieve the cost and savings in administration, is to introduce an Employee Car Ownership Scheme.
These schemes are usually known as ECOS.
In essence, ECOS are alternative methods of financing cars for essential business users. The car is funded through a combination of taxable car allowance, tax-efficient business mileage re-imbursement and a contribution from the employee that reflects the benefit-in-kind saving they enjoy by no longer driving a company car.
The employee takes title to the vehicle at the start of the contract and signs (invariably) a credit sale agreement which covers the car’s finance and maintenance for an agreed contract term and mileage.
Another alternative: All-employee Car Ownership Plans
It is well documented that the current recession has led many small businesses to shed staff. Nevertheless, most companies are seeking to retain key employees; and even recruit high-quality staff from competitors.
At such a time All-employee Car Ownership Plans (ACOPs) can be a good way of offering vehicles to employees who are not entitled to a company car. Such ‘affinity’ schemes offer employees a range of options from inexpensive finance rates to vehicles at preferential rates agreed with the employer. These schemes can prove excellent at retaining alpha staff at a time of employment uncertainty.
ECOS and ACOPs can provide significant savings for employers – although these are dependent upon several factors. It is crucial that small businesses should seek expert advice prior to opting for either scheme especially given the back-drop of challenging economic times.
Fleet Alliance comment on ECOS
Martin Brown, managing director of Fleet Alliance says: ECOS schemes were some years ago described as having a massive bearing on the future of the fleet market. The reality: take up has been relatively small. The set up costs, and time involved to implement, mean that these schemes are only worth considering if you have a fleet of 300 vehicles and upwards.
My advice for the small business user would be to find a good fleet provider who can assist you in setting up a less cumbersome scheme, providing drivers with an effective cash allowance plan to meet the needs of your cash drivers.
Read more about ECOS
For additional commentary on ECOS, read the Editor’s Blog ECOS: are they the right product for small businesses?
