Fleet News

Fleet funding: ECO schemes

Approved Mileage Allowance Payments review raises doubts about future of funding schemes.

Employee car ownership schemes, or ECOS, have been one of the great fleet success stories of the 21st century so far.

They offer a halfway house between traditional company car provision and the ‘grey fleet’ of employees using their own car for business purposes, and have been replacing traditional company car schemes across the country.

But recently there have been reports that some fleets are moving away from ECOS because of concerns over increased administration, a loss of control over vehicle maintenance and uncertainty over future approved mileage allowance payments (AMAPs), currently under review by HM Revenue and Customs.

AMAPs are the reimbursements to drivers to cover fuel costs and upkeep and wear on their vehicle.

The review is intended to update the structure of the payments to better reflect the costs incurred by different types of vehicles and to encourage drivers to be environmentally aware, as well as see if tax and National Insurance Contributions (NIC) can be aligned to mileage payments.

A fleet manager, who asked to remain anonymous, said “Our fleet moved away from ECOS, following a merger.

"The new finance department was convinced that the administration was too complicated and that due to the uncertainty on AMAPs there was a risk that the Treasury was planning to close down the opportunity for ECOS.

“The administration was quite complex as we were required by the Inland Revenue to report monthly.

“The drivers were very sorry to be losing the ECOS because it had been designed to benefit them rather than the company.”

WAIT FOR AMAP REVIEW

Many industry figures are urging fleets to be cautious until the results of the AMAP review are known.

“Until the Government completes that review we will not know whether ECO schemes remain a serious alternative,” says Terry Bartlett, MD of Inchcape Fleet Solutions.

Tim Hudson, commercial director at LeasePlan, says AMAPs were fundamental to ECOS: “Any changes to AMAPs will be keenly watched by anyone involved with ECO schemes,” he says.

Keith Allen, managing director of ALD Automotive, says: “The impact of health and safety-related legislation has ended the flood of alternative schemes. Employers are finding it easier to comply with legislation if a company car is provided.

"It is apparent that firms are leading the drive into low emission vehicles through company car provision. The convenience and hassle-free existence of the company car is difficult to beat.”

DON’T WORRY…

However, some say the future of ECOS is strong, thanks to Alastair Darling’s pre-Budget report which did not contain the expected changes to tax on ECOs.

Nick Sutton, chairman of ECOS provider Provecta Car Plan, says: “Many clients know that an unstructured gross cash scheme offers no control and leaves them vulnerable under new health and safety laws – so ECOS is the solution because it adds structure and control to cash schemes.”

Paul Coley, associate director of consultancy services at Lex, thinks it likely the AMAPs will move towards CO2 bandings, following previous Government legislation patterns.

“There’s no doubt that ECO schemes are more administratively burdensome than a traditional company car scheme and it can prove to be ‘too much effort for little gain’,” he says.

“ECO schemes were oversold when the company car tax rules changed in 2002. However, they weren’t achieving the savings promised, mainly due to early terminations and lack of business mileage from drivers. The effort to manage these schemes was diminished by the meagre savings they provided.

“But schemes that were implemented, managed and assessed properly have proved successful. If the right factors are present; low employee attrition rates, high proportion of high rate taxpayers, adequate business mileage across the fleet, sensible policy decisions, ECO schemes can and have prospered.

"And with the potential Government changes to AMAPs, these schemes will continue to prosper.”

However, Fiona Massey, a senior manager in Deloitte’s Global Employer Services team, says waiting to see what happens may bring separate problems.

“Whilst ECOS require separate tax and NIC reporting, these records and controls are required for other business reasons, such as understanding asset usage and costs, health and safety monitoring and capturing private mileage for accurate private fuel tax and VAT reporting.

“If there are any changes made in HMRC’s AMAP review, there will be winners and losers, but ECOS can remain an appropriate fleet funding solution for the right fleet or driver profile.

“Deferring the launch of an ECO scheme may be the sensible approach, but fleet managers should proceed with a full funding review in line with their normal timescales.

“Waiting for the conclusion of a review which is not running to timetable is equally risky. Not only will it defer access to real savings, but suppliers will have a backlog of implementations to deal with, adding further delay.”

Terry Bartlett echoes Ms Massey’s views. He says that whatever your opinion of ECOS or the outcome of the AMAP review, methods of funding should be reviewed at least annually.

“With numerous issues to consider – overall cost, cash flow implications, balance sheet effects, corporation tax, VAT implications, benefit-in-kind taxation for drivers, flexibility to the business, HR/personnel implications, risk management and internal administration factors – fleet funding is a potential minefield,” he says.

“That is why an ever-increasing number of companies are looking for a consultative approach and frequently end up choosing a mix of funding options.”

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