ECO schemes are usually set up with the help of a specialist partner, like Maxxia, who will arrange funding, source vehicles and provide the opportunity to outsource some or all of the management of the fleet.
Two of the most critical aspects of ECO schemes are the treatment of Benefit in Kind Tax and the use of AMAP rates, see more below:
Benefit in Kind (BiK) Tax
As mentioned, to ensure that Benefit in Kind tax is not payable, ownership passes to the employee from the start of the contract, using a credit sale agreement.
Unlike other forms of funding such as Contract Hire or Contract Purchase the use of a credit sale agreement ensures that there is transfer of ownership.
Approved Mileage Allowance Payments (AMAPs)
Where there is business use, ECO schemes use Approved Mileage Allowance Payments (AMAPs) to help fund the cost of the car. The tax free AMAP rates are intended to cover the costs of fuel, oil, servicing, tyres, road fund licence, insurance and depreciation, which is allowed by HMRC when using a private car.
AMAPs are paid to the employee monthly, along with additional payments when the business mileage of the employee is not sufficient for the AMAPs (less the actual cost of the fuel) to cover the cost of the vehicle. This means that the amount of allowance paid to each employee varies on a monthly basis.
AMAP rates for the 2019/20 tax year are:
- 45 pence for the first 10,000 business miles in a tax year
- 25 pence for each subsequent mile