Flexibility and organisational control are factors driving the demand for Ecop schemes, says Curtis Hutchinson
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The provision of cash alternatives to company cars became popular in the run up to new benefit-in-kind (BIK) April 2002 tax rules.
Ecops are run by fleet funding providers and employees using them are exempt from company car BIK tax.
Ecop drivers qualify for approved mileage allowance payments of 40p per mile for the first 10,000 business miles.
Ecops can be extended to staff not qualifying for a company car.
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The overhaul of the benefit-in-kind (BIK) tax system in April 2002 had the desired effect of making drivers question whether or not they actually needed a company car. The new system prompted many drivers to seriously consider the cash alternatives being offered by an increasing number of employers. These have become more sophisticated since the tax changes, as employers tackle the twin-edged sword of delivering desirable employee benefits while keeping an eye on their corporate obligations.
According to Richard Schooling, commercial director of Alphabet, employee car ownership plans (Ecops) have proved a popular form of cash allowance because they offer employee flexibility and employer control.
"Ecops provide employers with a great deal of control which is important when you factor in health and safety and duty of care responsibilities. If you’re just providing cash then you don’t have any control and can find yourself exposed," he explains.
Drivers most likely to benefit from Ecops are those clocking up high business mileage who qualify for rebates under HM Revenue & Custom’s approved mileage allowance payments (Amaps) scheme. "The Amaps rates currently stand at 40p per mile for the first 10,000 miles and 25p thereafter for employees using their own cars for business. That’s a big tax-free incentive for drivers," says Schooling.
The standard Ecop policy is based on a credit-sale agreement, so the title of the vehicle passes to the driver, who is therefore exempt from company car BIK tax. Typical agreements run for two or three years and include servicing, maintenance, road tax, breakdown recovery and insurance with the provider committing to buying the vehicle back at the time of the final instalment. Employees are often given the option of buying the vehicle at the end of the agreement but, with an eye on corporate responsibility, this should be done on the understanding that the vehicle is used as a second car rather than for business.
Peter Cooke, automotive professor at Nottingham Business School, believes fleets can make significant savings through Ecops as well as manage their risk exposure. "Ecops do not suit every employer but where they do they can deliver huge savings on overall costs. The Ecop provider usually manages the car’s maintenance which adds another dimension to the employer’s ability to monitor risk," he says.
Ecops clearly have an important role to play in companies providing staff with cars but should be considered as part of the fleet funding mix rather than a standalone alternative.
Alison Chapman, head of automotive tax at Deloitte, explains: "The successful management of vehicle funding to the satisfaction of both employers and employees, who have different and often conflicting requirements, is undoubtedly more of an art than a science. Flexibility in the provision of corporate transport solutions has become crucial to both organisations and their employees but both parties have frequently failed to analyse in detail the full implications of opting out of staying loyal to the company car."
A number of high profile organisations have successfully introduced Ecops. McDonald’s has around 1,200 employees who are eligible for company cars but the fast food chain noticed that around half opted out of the traditional scheme when a cash option was first offered five years ago. Last year, it introduced an Ecop which has proved so popular that it has opened it up as a benefit for its 50,000 UK staff .