Under measures in the draft Finance Bill 2025/26, nearly 80,000 company car and van drivers will lose the tax advantages of employee car ownership schemes (ECOS) from October 2026.
Currently, ECOS arrangements allow employers to avoid benefit-in-kind (BIK) charges by transferring ownership of a vehicle to an employee on day one, typically using a credit agreement handled by a third party. These schemes have been especially popular in the automotive industry, where trade discounts make them cost-effective.
From 6 October 2026, however, vehicles provided through ECOS will be taxed as BIKs when made available on ‘restricted terms’. This includes situations where the registered keeper isn’t changed, or where a buyback clause exists. In effect, such vehicles will be treated the same as traditional company cars.
The Government estimates the change will affect around 76,000 individuals and bring in £275 million in additional tax in 2026/27. Ongoing revenue is expected to settle at £200m per year, although this could vary as employers update or phase out their car schemes.
The new rules will be introduced through changes to Chapter 6 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which covers taxable benefits related to cars, vans and associated perks.
Employers and employees using ECOS arrangements may need to consider alternative options ahead of the October 2026 deadline. For many, this could mean a shift back to standard company car schemes or cash allowances.
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