Employee car ownership schemes

An Employee Car Ownership Scheme (ECOS) is a set of arrangements whereby employees acquire cars from a specified, often single source and within a specified financing framework. The use of an ECOS can effectively be seen as a halfway measure between providing a company car and leaving an employee to make all their car arrangements privately.

An ECOS gives employees similar benefits to having a company car, for example a new car on a regular basis, and/or central organisation of insurance and servicing but is structured in such a way that normal car and fuel benefit provisions do not apply.

HMRC has published special guidance on the ECOS due to the Coronavirus restrictions. If an employee has not been able to return the car to the dealership or factory for its assessment, there may be an Income Tax charge on the amount of the loan still owing.

If the loan period was less than 4 years, it may be possible for the employee to arrange an extension with the loan provider for a few more months. This will cover the period until the car can be returned and the loan settled. If this is done, HMRC will accept that the arrangements do not give rise to the Income Tax charge. If, however, the loan is extended beyond 4 years, an Income Tax charge will arise.

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