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ECO schemes set to continue

Date: 21 September 2006

HM Revenue & Customs is likely to rubber-stamp the existence of Employee Car Ownership Schemes following the review announced by the Government in its Budget 2006.

The full results of the review will be known in late November or early December, when HMRC reports its findings. This covers the number of employees in ECO schemes, the types of cars and their CO2 output, the different types of ECOs, and the advantage to employees by entering into ECOs.

The review was precipitated by the reduction of 400,000 company car drivers since 1999 - the majority citing the 2002 introduction of new CO2-based company car tax rules as the reason.

"While we must obviously wait and see what HMRC says in its final document, from my meeting with the working party I see no intention of taking ECO schemes out of the market place," commented Alastair Kendrick, partner, Wilder Coe Chartered Accountants at GE's Future of Fleet seminar.

"I think their concern would be that, if ECOs were closed down, drivers would gravitate towards cash instead. And that would have a severe effect on risk in the market place.

"So, they're after a workable solution. My feeling is that salary sacrifice will not be allowed in an ECO scheme as this has an impact on the amount of tax and NI payable. And special purpose vehicle companies will also be banned."

Kendrick also believed that AMAP rates would not change because of the impact on the two million public sector workers. "If that were the case, the main loser would be the government itself," said Kendrick.