NIM05770 - Class 1 NICs: Expenses and allowances: Motoring expenses (including mileage allowances) paid on or after 6.4.02: Employee Car Ownership Schemes

What is an Employee Car Ownership Scheme?

Broadly speaking, an Employee Car Ownership Scheme (ECOS) is a set of arrangements whereby employees acquire cars from a specified (often a single) source and within a specified financing framework. The schemes are also known by similar names, such as “Employee Car Purchase Schemes” or “Employee Car Ownership Plans”. They do not include mere “cashing out” arrangements where the employer stops providing a company car, increases remuneration and simply leaves the employee to get their own car. Nor do they include what are often referred to as “affinity schemes”, where the employer only acts as introducer and plays no further part.

A scheme may be designed and administered by

  • the employer, or
  • a company within the same group as the employer, or
  • a third party which specialises in them.

Most of the large firms of accountants are involved in marketing these schemes. Typically they are designed to give employees most of the benefits of a company car

  • a new car on a regular basis
  • servicing, insurance, etc., organised centrally
  • limited exposure to depreciation in the value of the car
  • without the employee being taxed on the cash equivalent of a company car, and without the employer having to meet Class 1A NICs liability on that cash equivalent.

Determining NICs and income tax liabilities

Unlike car benefit (EIM23000) and car fuel benefit (EIM23700), no single body oflegislation deals with ECOS. Instead, the relevant law when considering ECOS is drawn from various parts of the employment income and NICs legislation.

You will find guidance about ECOS in EIM31510 to EIM31595. The 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.