In reality, the majority of drivers should be better off under the new system, and every driver will have the choice to opt for a more tax efficient car when his or her company car comes up for renewal.
But there is no doubt that there will be more than a few white faces at the end of next April when some company car drivers look at their salary slips and wonder why their take-home pay is a couple of hundred pounds lower than it was in March.
Interleasing's new Alto product provides a solution to employers facing the difficult prospect of a recalcitrant workforce waking up to sharp rises in benefit-in-kind tax bills. The leasing and fleet management giant has devised a method of converting existing contract hire customers to the Alto structured employee car ownership plan. New customers could take advantage of the scheme, although early termination charges from their existing leasing suppliers are likely to prevent this from being cost effective.
Gordon Calder-Jones, head of Alto, said the scheme was ideally suited to high mileage, higher tax rate company car drivers ie those who currently pay benefit in kind tax at 15% of the price of their car, and who in some circumstances could see this rise by 133% to 35% of list price under 2002's new emissions-based company car tax.
'Alto sets out to replicate a company car scheme, but the funding changes to protect them from benefit-in-kind changes,' he said. 'The scheme aims to keep drivers neutral at their current company car tax level or what it will be under next year's system.'
The fact that each employee's tax exposure is different makes the scheme a serious piece of human resource engineering, and Calder-Jones warns that there are so many constituent parts to Alto that any generic promises of savings would be dangerous.
Alto is based on Arthur Andersen's Structured Employee Car Ownership Plan, with Interleasing providing a complete outsourced fleet solution from vehicle acquisition to service, maintenance and repair, and disposal, covering the risks itself. Because of the planning involved in implementing Alto, Calder-Jones is initially promoting it to fleets of at least 400 vehicles, and says they should make savings within the first year, after taking into account set-up consultancy fees. Interleasing will also seek Inland Revenue approval for each scheme before it implements it. The time-frame for implementation differs from client to client, but an average three months is usually sufficient.
'We do not claim this is the panacea to all fleet woes, and we are certainly not trying to convert people when we know it's not right for them. It's a consultative sell,' said Calder-Jones.
How the ECOP schemes work
ECOP schemes see employees technically own their company cars, thereby avoiding company car tax.
The driver funds the car through savings in tax, along with a cash allowance from the employer. Part or all of the cash allowance can be funded through Inland Revenue Approved Mileage Rates that create a tax free and National Insurance free way of reimbursing employees for driving their own cars on business. The company behind the ECOP can deduct the monthly payments directly from the employee's salary, so credit risk is minimal, helping to keep interest rates at a highly competitive level.
ECOP schemes can provide full service and maintenance cover, and guaranteed buy-backs, so drivers avoid any residual value risk.
Corporate insurance cover can continue to apply to ECOP drivers, so long as the full cost of the premium is recharged to each driver.
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