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The Future for Employee Car Ownership

The employee car ownership scheme was introduced to replace company cars; it is designed to give employees similar benefits to a company car such as a new car on a regular basis, central organisation of insurance and servicing.

An employee car ownership (ECO) scheme has to be organised by an employer, employees are provided cars from a specified source within a specified financing framework. But, recently a leading tax expert has casted doubts on the scheme.

Gary Hull who is the director of human resources at PricewaterhouseCoopers, has suggested that the downward trend in business mileage is wiping out tax savings originally achieved by employers. Add to this the rising cost of fuel, plus the administrative burden created by the monthly reconciliation process is now making contract hire a more attractive, tax efficient option for companies and drivers alike.

He said, “Few of the existing ECO schemes would have been introduced if the process had started today. Employers should review the business case produced to support the introduction of any existing scheme and compare this with their current requirements.”

According to a recent study an estimated 100,000 employees are provided with a car through an ECO scheme, these numbers have been in decline since the peak seen in 2004/05. The decline in the number of (ECO) users has been accelerating as the savings continue to erode.

The problem though is most employers are reluctant to switch from the ECO scheme after investing time in educating staff and the expense in building a platform to support the administration required. Other employers do not manage their schemes closely enough to understand the cost to their business.