The future for employee car ownership (ECO) schemes has been called into question by a leading tax expert.
Gary Hull, director of human resource services at PricewaterhouseCoopers (PwC), believes the downward trend in business mileage is wiping out tax savings originally achieved by employers.
In addition, the rising cost of fuel, plus the administrative burden created by the monthly reconciliation process is making contract hire a more attractive, tax efficient option for company and driver alike.
“Few of the existing ECO schemes would have been introduced if the process had started today,” said Hull.
“Employers should review the business case produced to support the introduction of any existing scheme and compare this with their current requirements.”
It’s estimated that more than 100,000 employees are provided with a car through an ECO scheme, although numbers have been in decline since a 2004/05 peak.
That trend has been accelerating as the savings further erode.
In addition, some suppliers have pulled out of the market. Lex Autolease, for example, stopped offering its Whitechapel ECO scheme last year for fleets with fewer than 300 vehicles.
One key consideration is business mileage driven, as it may be cheaper to pay a combination of cash and mileage allowances to the employee, so they can buy and run the same car at no additional cost.
However, the employer’s potential savings are dependent on the type of car, the level of discounts, the employees’ marginal tax rates, business mileage and whether the employer guarantees the payments.
Some employers are reluctant to switch from ECO after investing time in educating staff and expense in building a platform to support administration. Others do not manage their schemes closely enough to understand the cost to the business.
Ben Creswick, business development director at Zenith Provecta, said: “Changes in the economy such as the increase in VAT, reduction in C02 emissions of new vehicles and manufacturer price rises have skewed the mileage, tax and C02 break points where schemes deliver a comfortable financial saving.”
But he believes it remains an important funding option, even if it is increasingly offered as part of an overall funding solution, including contract hire and salary sacrifice.
Paul Hollick, general manager sales development at Alphabet, where more than 10% of its port-
folio is ECO-based products, claimed customers would not change while savings were still available.
In fact, he argues that growth could yet be on the horizon with some multi-national businesses turning to ECOs as an alternative to having contract hire cars on to their balance sheet under the proposed changes to lease accounting rules.