In simple terms, ECOS are an efficient method of providing an employee with a vehicle, usually petrol, diesel, or self–charging hybrids, with the benefits of a company car but without the usual associated tax.
This guide explains how ECOS works, the tax efficiencies for employees and employers, and how it compares to company cars.
If you’re a UK-based business looking to provide your employees with a car benefit solution, you can find more information in our blog: Which car solution is right for your fleet?
How does an Employee Car Ownership Scheme work?
The structure of ECOS transfers the ownership of the car to your employees by selling the vehicle to them using a Credit Sale Agreement (CSA).
The car is then no longer classed as a company car, so Benefit-in-Kind (BiK) tax isn’t payable by your employees, and you don’t owe Class 1A National Insurance Contributions (NICs) on the benefit either. You collect the CSA repayment or desired contribution from your employees via payroll, and then pay a collective invoice from us for your car fleet.
Our team of experts is ready to learn about you and your business. We’ll look at your existing car benefit arrangements, listen to and understand your employee car benefit objectives, and design an optimised fleet solution for your business.
Discover our approach to providing your business with a car benefit solution.
How can your employees participate in the scheme?
- Employees choose a car from a choice list controlled by you. Selection, ordering and delivery are all managed on the CBS Portal.
- The car is then sold to your employees, who are no longer subject to company car tax.
- Your employees make a monthly contribution towards the car’s running costs. Their contribution is made via net pay and has no impact on their credit score.*
- The renewal process is easy. At the end of the term, employees can choose a brand-new car.
Keep your employees happy by giving them an affordable way to drive a brand-new car with the operational benefits of a company car.
You can also choose to include insurance or a maintenance package as part of the scheme to eliminate the hassle of sourcing insurance or organising a maintenance package.
What are the tax efficiencies?
BiK tax for your employees and Class 1A NICs for you aren’t applicable. This is because your employee becomes the owner of the vehicle when the car is delivered.
Employees pay a fixed amount each month, deducted from net pay, to cover the car’s running costs. You determine the level of employee benefits, meaning you can choose how much an employee contributes depending on their seniority.
Traditional Fuel Cars
With the removal of BiK tax for your employees and Class 1A NICs for you, petrol, diesel or self-charging hybrids are the most cost-efficient vehicles for employee car ownership schemes. You can choose how much your employees pay towards the life costs of the vehicle.
With employee car ownership schemes, you’re providing an affordable and accessible way for your employees to drive a brand-new petrol, diesel or self-charging hybrid.
Is a company car better?
From HMRC’s point of view, business leasing or company cars are taxable, whereas employee car ownership scheme vehicles aren’t.
Your employees pay the appropriate BiK tax for a traditional company car, depending on the car’s emissions and P11D value. As an employer, you also pay Class 1A NICs on a company car.
Maintenance is generally included, and we can facilitate that, however, it’s up to you, as the employer, to decide what level of benefit you want to provide.
Employee Car Ownership Scheme FAQs
Still have a question? See if the answer is below in our frequently asked questions.
You can also ask our customer experience team through our Online Chat.
What cars can employees choose from?
The choice lists generally include petrol, diesel, or self-charging hybrid cars, but you get to choose the cars you make available.
Do we need to tell HMRC?
Your employees only need to notify HMRC if they change from a company car to an employee car ownership scheme vehicle. This is so their tax code can be updated accordingly. You must also update your P46(Car) reporting when your employee leaves their company car.
Who owns the car?
Your employee named on the Credit Sale Agreement, is the legal owner of the vehicle from the date it’s delivered to them.
Does contributions show on payslips?
Yes, your employees see the contribution as a deduction from net pay on their payslip.
Is Benefit-in-Kind tax due on the car?
As it isn’t classed as a company car, Benefit-in-Kind tax isn’t payable by your employees, and you don’t owe Class 1A National Insurance Contributions on the benefit either.
Is the scheme worth it?
If you’re in the market for a traditional fuel fleet while you consider your journey to electric and are considering leasing options, it could be a more cost-effective solution. If you want to generate business savings, have the freedom to choose which cars can be added to your fleet, and gain full control by choosing how much your employees contribute towards the running costs of their vehicle, it’s the right scheme for you.
Can employees claim mileage?
As they own the car, employees can receive Approved Mileage Allowance Payments (AMAP) for business miles they travel.
Are there any restrictions on mileage?
Mileage is set at the start of the agreement. Exceeding the mileage may result in additional charges for excess mileage and costs for any damage or missing items. Adhering to the agreed mileage is the best way to avoid extra fees.
How does insurance work?
You’re covered for insurance under your employer’s fleet policy. In the event of an accident, contact your fleet or HR department for guidance on the necessary steps.
Bring an Employee Car Ownership Scheme to your Business
Remove your fleet from the scope of company car tax and create business and employee savings.
Do you want to…
1. Generate savings on your current fleet?
2. Continue driving the cars that work for your business and employees?
3. Remove the P11D admin burden of your current solution?
If the answer is yes, get in touch today.