Fleet News

Tax expert's warning on 'misleading' ECOs

A LEADING tax consultant has warned that fleets are being missold employee car ownership schemes that neither meet the needs of employer nor driver, nor comply with Inland Revenue rules.

Alastair Kendrick, director of employee and NIC solutions at Ernst & Young, claims so-called 'independent' advisers may not be as independent as they profess due to specific relationships with individual leasing companies to promote their tax-driven company car products.

He also argues that fleets are being presented with ECO schemes as the universal panacea to their fleet woes, when in reality such schemes may not be appropriate.

'I have spoken to a number of employers who have been told by other advisers that an employee car ownership scheme would be viable for them and that savings typically of £1,000 per vehicle per annum could be achieved,' said Kendrick.

'In reality given the profile of the fleet this figure would never be achieved and therefore there is an element of mis-selling.'

As a rule of thumb, Kendrick describes ECO schemes as viable only for employees who drive significant mileages on business and who therefore qualify for significant tax free and NIC-mileage reimbursements of 40 pence per mile for the first 10,000 business miles and 25ppm thereafter.

The schemes may also be appropriate for employees who drive cars with high carbon dioxide emissions and who would otherwise suffer under the new CO2-based company car tax system.

'They are clearly not appropriate for employees who either drive CO2 emission-friendly vehicles or do not cover high levels of business mileage,' he said.

Even employers which have successfully implemented ECO schemes should review their viability, according to Kendrick, in the light of April's changes to mileage reimbursement rates (from 63ppm to 40ppm) and the benefit-in-kind tax system.

He added that further problems may arise because certain providers have built the tax efficiencies into their ECO schemes using particular tax plays that are no longer available.

Kendrick said a significant number of employers have not focused on these issues which could result in a tax liability if they were subject to Inland Revenue scrutiny.

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