Legislation update – Government’s Eco worries

A plan to review employee car ownership (Eco) schemes published by HM Revenue and Customs (HMRC) last month has prompted speculation that new tax legislation could be introduced next year.

The publication stated that the review will cover areas such as how Eco schemes work, what the impact of schemes has been on carbon dioxide emissions compared with company cars and whether Eco schemes should be taxed as a benefit in kind. Currently, Eco drivers avoid paying benefit-in-kind tax on cars because they are seen as the vehicle owner.

Tony Leigh, chairman of the Association of Car Fleet Operators (ACFO), said that the government appears to be concerned about losing tax revenue. "The government clearly believes that it is losing revenue through more employees taking part in Eco, and it will not let this disappear easily." Alastair Kendrick, partner at Wilder Coe Chartered Accountants, added: "It is possible that the government may take a very hard line, and any Eco driver that is offered a discount by reason of employment will be taxed, although this would be a tough stance."

However, Eco drivers do pay tax on the increased income they receive to fund the scheme which goes some way to compensate for this lost benefit-in-kind tax. "There may be misconceptions as to whether the government is losing more money on benefit-in-kind tax than it is making on income tax.

It is pretty vague at the moment, and it may not be as simple as just introducing new legislation to curb Eco drivers, as they already pay one form of tax," said Leigh.