Employee purchase schemes: Cash in your hands

When companies provide a cash alternative to the company car, there are five major options available to employees. These are personal car plans (PCPs), personal contract hire (PCH), hire purchase, outright purchase and employee car ownership schemes (ECOPS).

Karen Bowen, head of personal motoring at ARVAL PHH says that, on the face of it, the simplest option is for a company to provide a lump sum to the employee in lieu of a car. The employee can then go off and contract individually for a PCP or any of the alternatives other than ECOPS (which are sponsored by the company, not the individual, and therefore require a more hands-on approach from the company). However, there are a number of problems with giving employees such a free reign.

Firstly, even if an employee is driving his or her own vehicle, Bowen says that, in the event they have an accident while on company business, the company is unlikely to be able to walk away with zero responsibility. Case law is not fully developed, but the courts are likely to regard the company as having a duty to ensure employees drive safe, well-maintained vehicles.

The government has made it known it is unhappy with the fact that company car drivers are responsible for a disproportionately large number of the fatal accidents on UK roads, and company boards could find themselves facing actions for manslaughter in future. They need adequate defences against such charges, and a “hands-off” PCP policy, in which the employee could drive an unsafe vehicle having banked the surplus cash, is unlikely to provide them.

Another point to bear in mind, she says, is that simple PCPs do not give companies control over questions such as brand and image. Do they really want junior sales people, for example, turning up to meetings with clients in souped-up Ford Escorts or tatty old Minis?

In contrast, structured ECOPS provide both employers and employees with a number of advantages. These schemes are all individually cleared with the Inland Revenue, which adds to their cost to the employer but also means that, at the time of creation, they are approved – although there is always a risk that changing legislation may make them redundant. ECOPs also give considerable fleet control to the employer, which can specify the vehicles that will be offered. For the employee, the benefits come from the fact that the employer is underwriting the whole plan to the fleet provider. This means drivers do not have to go through credit checks and they don’t have to put up a deposit themselves. Title to the vehicle actually passes to the employee on day one of the contract, which fulfils part of the Inland Revenue’s distinction between private and company cars.

If there is a major drawback, aside from the fact that ECOPS are expensive, it is that for many companies the schemes – despite being cleared by the Inland Revenue – carry a whiff of tax avoidance about them. ‘One of our enduring frustrations at ARVAL is that we can’t get clients to do case studies or go public on these schemes as they always seem to see them as tax avoidance. They aren’t,’ Bowen says.

For ECOPS to work, the fleet company has to have input from all sides of the business. There are HR, finance, tax and insurance issues. As Bowen points out, ECOPS don’t work for every company. They have to be sold on a consultancy basis (which adds to the cost). However, she reckons ARVAL expects to save a company around £1,000 per vehicle via ECOPS over standard contract hire schemes. ‘You have to do your fact find first, to establish that, at the very least, setting up the scheme will leave the company in no worse position.

‘If you have a company with all the company car drivers in the 22% personal tax bracket, all doing over 18,000 miles a year and all driving diesel vehicles, there is no point even talking about an ECOPS plan,’ Bowen says.

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