Employee car ownership
From 6 October 2026, the Employee Car Ownership Scheme (ECOS) is due to change. This scheme is different from the regular company car scheme in that the vehicle is purchased by the employee under a credit sale agreement, rather than being owned or leased by the employer.
Under ECOS, employees do not pay Benefit-in-Kind (BiK) tax because the vehicle is not held by the company. However, they do usually receive a mileage allowance or other reimbursements when using the car for work. At the end of the scheme, the employee may buy the car outright, or the company may buy it back.
What are the proposed changes to ECOS?
In the Autumn 2024 Budget, Chancellor Rachel Reeves announced legislation to close certain loopholes in the scheme. This is designed to prevent employers and employees from circumventing BiK tax.
ECOS is a popular scheme with vehicle manufacturers and dealerships. The initiative enables employees to purchase a car under a credit sale agreement with a guaranteed buy-back arrangement. The transfer of ownership of the vehicle means company car legislation does not apply. Meanwhile, the employee is provided with a loan for the purchase, and the buy-back agreement allows the employer to repurchase the car with the proceeds used to repay the outstanding loan.
By selling cars to employees in this way, and often at a major discount, manufacturers and dealerships avoid BiK because the sale price is below the cost of manufacture or retail price. The sector typically buys these cars back at a specified mileage, providing stock for the ‘nearly new’ market.
New legislation was announced on 21 July 2025, stating that ECOS will become subject to regular company car rules, and Benefit-in-Kind charges will apply when one or more of the following criteria is met:
- There are restrictions on the employee’s use of the vehicle
- The employee is not the registered keeper of the vehicle
- The ECOS arrangement includes a set buyback or onward sale agreement
- Scheme arrangements are of a description specified in regulations made by the Treasury
Why are the ECOS changes being implemented?
The government states that the objective of the changes is to “ensure fairness with other taxpayers [and] reduce distortions in the tax system”. It will also encourage companies to offer low and zero-emissions vehicles to employees, as there are significant tax benefits to doing so.
Who will be impacted by the changes?
The government has estimated that some 76,000 individuals will be affected by the changes. These drivers will become liable for the tax associated with the benefit, adding a projected £275 million to the Treasury in 2026-27 and £220 million the year after.
How to deal with ECOS changes
If you’re an employer offering the Employee Car Ownership Scheme, you may wish to review the way you supply company cars from October 2026. You could reduce employee BiK liabilities by offering low-emissions or electric vehicles, or introduce a salary sacrifice scheme.
Assistance with ECOS changes
If you require assistance with understanding the changes to ECOS, or you would like to discuss alternatives that will minimise your tax liability, contact a reputable accountant today.
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