Fleet News

'Another nail in the coffin for ECOs’

FLEETS and leasing companies may ban cash-for-car schemes as a result of new disclosure rules.

Black-i Vehicle Management, a company that has campaigned for companies to reaffirm their allegiance to the company car, says it feels certain cash-for-car schemes will be at risk.

Black-i managing director Nick Brown said: ‘We have taken expert tax advice and believe that Employee Car Ownership (ECO) schemes potentially fall within the tax disclosure regulations.’

The majority of companies implementing an Employee Car Ownership scheme seek Inland Revenue approval.

However, under the new rules companies operating schemes that fall within the tax avoidance net will also have to formally disclose details of those arrangements to the authorities.

Brown said: ‘Getting an ECO scheme rubber-stamped is one thing. However, formally disclosing its existence on company annual tax returns will, I believe, be unacceptable to a lot of companies.

‘The disclosure clearly implies that the company is working on the fringes of tax legislation and could lead to many questions being asked by shareholders. Boards of directors will be very wary. I am aware that the drafting of the new rules is very wide and I am sure that tax experts are discussing with Inland Revenue officials whether ECO schemes that have been approved and those yet to be implemented can be made exceptional to the disclosure regulations subject to certain guarantees.’

Brown argues that some of Britain’s largest companies have either established ECO schemes or are looking at implementing them and believes the new guidance will mean those companies will look to abandon ECO in favour of the company car.

He added: ‘Companies do not like attracting the attentions of the taxman and operating an ECO scheme will ensure that happens if they fall within the disclosure rules.

‘Experience shows that ECO schemes invariably do not generate the savings claimed for either the employer or the employee.

‘They also require expensive professional advice both to establish and operate on an on-going basis. The fact that they could now fall within Inland Revenue disclosure of tax avoidance regulations puts another nail in the coffin of ECO schemes.’

Providers of ECO schemes clearly disagree.

ECOS are here to stay, says firm

FIONA Massey, head of consultancy at Whitechapel, disagrees that the new regulations will have an effect on ECO schemes.

She said: ‘It would seem rather drastic to suggest that, following the introduction of the new tax avoidance regulations on August 1 2004, ECO schemes are at risk and fleets and leasing companies will ban them.

‘The regulations are designed to provide the Inland Revenue with better intelligence on the taxable aspects of employee benefits, with a view to providing the Government with the necessary information it needs to be able to quickly clamp down on benefits that are not tax compliant.

‘The regulations are specifically targeted at employee benefit arrangements which involve securities, payments to trustees and intermediaries and financial products that include the making of and the release of loans. ECOs do not involve any securities or payment to trustees.’

Massey added that although a third-party ECOS provider such as Whitechapel does receive the payment of allowances, it does not hold or use any payments for the benefit of employees.

She claimed that a well-structured ECOS provider will calculate tax contributions and co-ordinate Inland Revenue approval before a scheme is implemented.

This ensures that the scheme is fully tax compliant and that a company pays the correct amount of tax.

Massey said: ‘Companies should be more wary of poorly-equipped ‘providers’ that don’t have this financial and taxation acumen or infrastructure, as ultimately this will attract the attention of the tax man and bring their ECO schemes and financial records under scrutiny.’

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