An employee car ownership scheme does what it says on the tin – it is a scheme whereby the employee owns the car, and not the company.
Because the employee owns the car, they get to choose it and there is no benefit-in-kind taxation associated with it – the employee has full legal ownership of the vehicle. In theory, an employee car ownership scheme can offer a more tax efficient way to own a car.
The scheme gives the employee a monthly salary allowance to go towards a vehicle, worked out on a case by case basis, based on their car grade, tax bracket and annual business mileage. The cost of the vehicle is underwritten by a corporate guarantee.
The reason an employee might choose such a scheme rather than just financing their own vehicle is that they have access to all the convenience services of a company car, such as breakdown cover and servicing. In addition, they will be given the option to trade up by increasing personal contributions, or trade down and benefiting from any surplus allowance.
In addition, they are fully protected from the potential loss of the vehicle or a change in personal circumstances that might lead them to default on payments.
An employee car ownership scheme has become less popular in recent years due to the rise of salary sacrifice schemes. They can also be fairly involved and complex to run – which has been off-putting for some.
If you’ve found this article useful then make sure you visit our complete A-Z of business fleet terms, which provides a complete glossary so you can make an informed purchasing decision.
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