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The landscape for employee car ownership schemes

Alastair Kendrick

By Alastair Kendrick, an employment tax specialist with experience of employee car ownership schemes

We have seen a number of recent articles exploring the future shape of the company car fleet in the UK.

Given the ever increasing benefit in kind being sought by the Government from those who are provided with a company car and further by the restrictions introduced at April 2017 (with the further proposed changes at April 2019) in respect of salary sacrifice schemes, it begs the question is it time to look again at employee car ownership schemes? 

Whilst we are seeing some suggesting the way forward is personal leasing, given the significant tax risks to an employer if that scheme is promoted or supported by them, this in reality only has a limited usefulness in the corporate marketplace.

Clearly, it works for those offered a cash alternative who then directly approaches a provider personally (unsupported by the employer) to enter into a finance arrangement such as personal contract purchase (PCP) or personal contract hire (PCH).

But in reality employee car ownership schemes have never really ever died, it is just that many leasing companies moved away from promoting them instead offering salary sacrifice.

There are still a number of employers who operate such schemes and they are widely used by car manufacturers/ importers for their own employees who can buy the vehicle at a substantially discounted price (above manufacturing/ landed cost). In addition, it is used extensively by car dealers for their employees.

There is no reliable data of the size of the population of those employees who are currently in an employee car ownership scheme but it would be significant


Who would benefit from an employee car ownership scheme?

These are generally viable propositions for those who want to take a car for which there is limited depreciation over the life of the agreement and because of their levels of business mileage would be in a position to claim significant amounts of approved mileage allowance payments (AMAP), which in part can be  used to settle part of the costs of providing a vehicle


The important facts that need to be considered

That ‘title’ to the vehicle needs to transfer to the employee at the outset of the agreement. With this in mind the leasing company may be concerned over the position of an employee who leaves their employment over the life of the loan period.

It would not be uncommon for any finance agreement to be guaranteed by the employer to minimise the risk to the lessor. If then the employer ceases to be employed the costs on early termination would be met by the employer but they are likely to take out insurance to cover that risk.

There needs to be consideration over what is done for those employees who take maternity/paternity leave or long term sick leave during the period of the loan agreement.

The risks if the contractual mileage is exceeded over the term of the agreement. Clearly there would be a financial penalty in that situation and the question is does the employee know that this is their risk and not something which would be met by the employer.

Then there is the risk on mileage control. This is not just a case of ensuring only genuine business mileage is claimed - although this is important.

It is essential if the AMAP is to be used in part to meet the costs of providing the car that the AMAP is paid and recovered against those costs- for tax purposes they cannot just be offset.

Also because of Regulation 22 of the NIC rules it is relevant that the calculation is done by reference to earnings period taking all relevant motoring expenses into account for that period which will include repayments for the vehicle to the leading provider.

One of the new issues is the involvement of the consumer credit act (CCA) and with this in mind the need to ensure the agreements are correctly structured and all the safeguards are operated in accordance with the CCA requirements.

I have always said it is important that employers obtain HMRC clearance of their scheme but given the current environment to clearances getting such confirmation is not easy to achieve.


So is it worth considering?

Yes it is given the increasing tax costs on the conventional company car but the question is whether it is something your existing leasing provider will be prepared to provide and support

But it is of course it is only worth considering if such a scheme can work within your driver profile

It will be interesting to see if there is a real move by lessors to dust down the employee car ownership schemes they offered over 10 years ago and try to re-market across their current customer base


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