Many employers offer a ‘cash-for-car’ option to employees who would qualify for a company car.

“Under these arrangements the employee receives an additional allowance alongside the salary in place of a company car,” explains Tonks. “This may be particularly tax effective where the employee does relatively low private mileage, or wants to use a lower cost car.

“The level of structuring of ECO schemes can vary, but the general aim is to reduce the net of tax cost of the car to the employer and employee,” adds Tonks.

This is achieved by placing ownership of the car with the employee so that there are no benefit-in-kind costs, while maximising the use of tax-free mileage payments.

An ECO scheme may be designed and administered by the employer, by a company within the same group as the employer, or by a third party that specialises in provision of alternative packages to the company car. 

• Pros: employer retains control of fleet policy; vehicles are ‘fit for purpose’; fixed costs; and potential tax savings.
• Cons: needs to be set up correctly to avoid HMRC risk; and can be time-consuming to administer.