EIM31501 - Employee Car Ownership Schemes (ECOS): description
Introductory remarks, common to this section of the guidance
Unlike car benefit (EIM23000) and car fuel benefit (EIM25500), no single body of legislation deals with ECOS. Instead, the relevant law when considering ECOS is drawn from various parts of the employment income and NICs legislation.
This guidance does not attempt to cover all relevant parts of the legislation in detail. Instead, it seeks to draw the essential aspects together in order to identify where tax and/or NICs can be payable under the normal benefits and expenses rules as they apply to ECOS.
The same principles apply to ECOS vehicles as to any privately-owned vehicles used for business travel.
Unlike the remainder of this manual, EIM31500 to EIM31599 cover both tax and NICs.
The meaning of the terms ‘Employee Car Ownership Scheme’ or ‘ECOS’
Broadly, an employee car ownership scheme (also called an employee car purchase scheme and by various similar names) is a set of arrangements whereby employees acquire cars
- from a specified, often single source and
- within a specified financing framework.
This guidance uses the abbreviation “ECOS” for all such schemes.
An ECOS is something more organised than the employer simply ceasing to provide a company car and (normally) increasing taxable pay to compensate. In such cases, the employer leaves the employee to get a car from any reputable source without becoming involved in the purchasing or financing arrangements in any way.
An ECOS may be designed and administered by the employer, by a company within the same group as the employer, or by a third party that specialises in provision of alternative packages to the company car.
In essence an ECOS is designed to give employees similar benefits to a company car (for example a new car on a regular basis, central organisation of insurance and servicing) in a way that means the car benefit provisions do not apply.
Structure of employee car ownership schemes
In order to avoid car benefit, one or more of the car benefit conditions at EIM23020 must not apply. It is only possible to escape two of those conditions while still providing benefits akin to a company car, “by reason of the employment” and “without any transfer of the property in it”.
The employer’s involvement makes it impossible to escape the first of those, so these schemes rely on avoiding the second. To do so, ownership of the car in an ECOS is transferred to the employee at the outset (see EIM23205).
So, in reviewing a scheme, the first point to establish is whether the employee has become the owner of the car at the outset. Only then can the ECOS succeed in avoiding car benefit.
Variations within ECOS
The phrases “employee car ownership scheme”, “ECO” or “ECOS”, ECOPs, SECOPs or Employee Car Plan are used to cover various different types of scheme. So they are incapable on their own of telling you a great deal about how any particular scheme works. In order to decide the tax and NICs consequences of any given scheme you will need to gain a detailed understanding of how it works by reading all the accompanying documentation.
See EIM31505 for guidance on reviewing a scheme.