Income Tax (Earnings and Pensions) Act 2003 section 554O

Exclusions: employee car ownership schemes

Section 554O provides an exclusion from the disguised remuneration rules (Chapter 2) for certain employee car ownership schemes (ECOS), subject to specific conditions including that any loan used to buy the car must be repaid within four years.

• An employee car ownership scheme qualifies for the exclusion where an employee takes out a loan from an authorised lender to buy a new car, with a repayment deadline of no more than four years, and the arrangement includes the option to sell the car back to the original seller at a pre-agreed price
• Steps taken solely for the purpose of purchasing the car, selling it back, or making the loan are excluded from the disguised remuneration charge, provided the arrangement is not a tax avoidance scheme and has no connection to one
• If the loan is not fully repaid by the specified repayment date, the outstanding balance is treated as a taxable relevant step — effectively a deemed payment to the employee — and the disguised remuneration charge under Chapter 2 applies to that amount
• The loan must come from an authorised lender holding the appropriate permission under the Financial Services and Markets Act 2000 and who is not acting as a trustee