Fleet News

Budget 2007: Government fails to address ECOs

THE government has again left fleets in the dark over the future of employee car ownership (ECO) schemes.

In last year’s pre-budget report chancellor Gordon Brown said he would make an announcement on how it would treat the taxation of ECOs in this year’s budget.

But such an announcement has been deferred until later this year.

Tax expert Alastair Kendrick, a partner at Wilder Coe, said: ‘It’s disappointing because we have been messed around for 12 months but it was unrealistic of the government to expect Revenue and Customs to have completed a study on ECOs between the autumn and now. It’s important that an announcement is made as soon as possible, certainly before the summer recess.

‘I think we are going to see AMAPs linked to CO2 emissions. I have no problem with that other than it could make the whole process quite complex for an employer to administer and could lead to mistakes.’

Some experts believe that by delaying its announcement and causing uncertainty among the industry the government hopes companies will be put off introducing ECO schemes.

ECO provider Provecta Car Plan welcomed the government’s decision to extend its consultation on ECOs and AMAP rates to allow for a fully informed decision to be made at the next pre-budget report.

Chairman Nick Sutton said: 'We welcome the Treasury’s recognition of a broad range of ECO schemes and the stated desire to put environmental incentives at the heart of its reform of AMAP rates.

‘This will allow employers to provide flexible benefits aligned within the government’s clear desire to promote personal environmental accountability. The outcome of the review will be pivotal to a number of key workers.

‘ECOs and, by extension, AMAPs are used widely by a broad range of employees including lower paid public sector workers such as district nurses and town planners so the possibility of reduced rates risks hitting such groups especially hard.'

Tim Hudson, commercial director at LeasePlan, said: ‘The consultation on employee car ownership schemes, which we were hoping to be concluded, is now going to appear later this year.

‘The suggestion that the government could amend the Approved Mileage Allowance Payments (AMAP) system in order to encourage more environmentally friendly business travel has the potential to impact on the take-up of these schemes.

‘If ECO schemes are rendered unworkable for many businesses, we would expect most of them to encourage employees back into more traditional company car schemes instead. We’ll have to wait and see.’

Neil Davies, technical director at car benefit and risk management consultancy Car Benefit Solutions (CBS) said: ‘Following months of uncertainty, the future of Employee Car Ownership Schemes (ECOS) looks more predictable after the budget.

‘By considering a change to tax-free mileage allowances, the government hopes to cut the potential for increased business mileage. But claims that structured ECOS have offered an incentive to drive more miles still don't add up. We've yet to find out if they will align AMAPs to CO2 emissions or change the current mileage thresholds but at least we finally know which area they're focusing on.’

Jim Salkeld, managing director of Opticar, said: ‘The ECOS review has not resulted in any conclusions but this is not surprising given their variety and complexity. If the proposal is to consider an alignment of AMAPs to emissions this would probably not be unwelcome to employers, although the actual numbers would have to be examined quite closely.

‘The reality is that where employers wish their employees to have the option of ECOS cars for recruitment/retention purposes, the business will ultimately pay.’

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