Car Salary Sacrifice and ECO Schemes

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Car salary sacrifice and ECO schemes

Total Motion delivers, supports and administers a wide range of schemes on behalf of its clients to complement their overall fleet policy.

The key benefit to this is that we are able to manage the entire car salary sacrifice process and take care of all scheme administration and employer liaison.

Car salary sacrifice

So what exactly is a car salary sacrifice car scheme?

The scheme is a tax efficient way for organisations to offer all their employees a brand new, fully insured and maintained car at a cost lower than they could achieve in the retail market.

Employees can choose to sacrifice their salary for the benefit, and, as salary is sacrificed before tax and National Insurance contributions are taken, it effectively means that employees save money on getting a new car.

All servicing, vehicle maintenance (including tyre replacement), European breakdown cover and fully comprehensive motor insurance are included. We also complete an annual driving licence check with the DVLA for each employee on the scheme. All of this helps to ensure your organisation is adhering to its duty of care responsibilities.

Benefits for the employer

  • It brings employers National Insurance savings
  • It is an excellent staff retention tool
  • It helps meet employer duty of care obligations through a fully-maintained vehicle
  • It delivers a fully automated online system for employees
  • It promotes and provides carbon efficient vehicles

Benefits for the employee

  • It brings employees tax and National Insurance savings
  • It provides a brand new, fully insured and maintained car
  • It offers further fleet discounts
  • It provides expert management of vehicle downtime
  • It delivers a fully automated online quote to order system
  • It offers worry free motoring

Employee car ownership

Employee car ownership (ECO) schemes differ from company car provision in one fundamental way: the car is owned by the employee; not the company.

In all other ways, the car is run in a similar way to a company car.

The switch in focus from the company to the driver means two further differences: the car is the driver’s choice; and, because the employee owns it, there is no benefit-in- kind company car tax liability.

An ECO scheme works by giving employees a monthly salary allowance to spend on a car of their choice. The allowance is worked out individually for drivers and is based on their car grade, tax bracket and annual business mileage. For this monthly fee, the driver also gets benefits such as servicing, maintenance and breakdown cover – in fact all the convenience of a company car.

One additional feature of an ECO scheme is that employees are given a much wider choice of cars and they may be given the further option of trading up (with a cost) or trading down (with a saving).

ECO is fundamentally different to offering employees a cash allowance instead of a company car. It places control of how the allowance is spent and supports the employer’s duty of care. This differentiates ECO scheme drivers from the ‘grey fleet’ of employees who use their private car for business.

Employers may introduce additional controls for health and safety reasons, or they may choose to add incentives to drivers: for example, additions to their monthly allowance if they choose more environmentally-friendly vehicles.

With an ECO scheme, there is no risk for the employee. Built-in insurances protect them from loss of the vehicle and changes in personal circumstances.

The final value of the vehicle is also guaranteed, allowing the employee the opportunity to renew his or her contract with the provider for a completely new car, as well as offering the choice of either handing the car back or buying the current ECO vehicle to keep or sell on.

Although ECO may not be suitable for every fleet (or for every vehicle in a company’s fleet) it now has the endorsement from HMRC that benefit-in- kind company car tax does not apply. This means it may be worth exploring as a tax efficient driver solution for today’s environment.