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Employee Car Ownership Schemes (ECOS) have become popular in recent years with the government estimating that there are some 76,000 ECOS users in 2025.
The schemes are designed to give employees similar benefits to a company car but without the tax implications of a traditional company car set-up.
In this article, Joy Shaw, Senior Tax Advisor explores what these schemes are and how forthcoming changes could affect you.
What is an Employee Car Ownership Scheme?
Under ECOS an employee receives a new car on a regular basis that is covered by central insurance and servicing but doesn’t pay tax on a company car benefit.
This is because an ECOS is organised differently, with employees acquiring cars from a specified, often single, source, by using a specified financing framework where the employer is not involved in any purchasing or financing arrangements.
Something that perhaps sounds too good to be true?
You’d be right to perhaps approach with caution, but ECOS have been effectively designed so that they’re not caught by any of the existing tax legislations covering company car and company car fuel benefits.
Unsurprisingly HMRC initially took quite a hostile approach to these schemes, requiring tax officers to review all documentation when carrying out a compliance review, although they appeared to be effective within the current tax rules.
However, it was announced in the 2024 Autumn Budget, that the government intended certain ECOS to fall back within the scope of Benefit in Kind rules to close such an increasingly popular tax loop-hole. And new legislation is to take effect from 6 October 2026.
Changes to ECOS in 2026
This draft legislation will insert a new section under the tax heading that will treat a car or van provided under an ECOS as a company car or van if:
- There are restrictions on the employee’s private mileage (for example a mileage limit) and
- The employee is not the registered keeper of the vehicle and
- There is a set buyback or onward sale arrangement, allowing the employee to transfer ownership of the car or van to another person for an amount set out or determined in accordance with the arrangements.
The government anticipate that this measure will recoup £275 million in tax on company car and van benefits in the tax year 2026/27.
The move will also likely prompt employers and employees to consider alternative options such as:
- Retaining the existing vehicle under a normal company car or van scheme
- Changing to a lower emitting (greener) vehicle with a lower benefit in kind cost
- Choosing to no longer have a company car or van
Once the tax advantages of ECOS are removed, the government aim to encourage employers and employees that still wish to have a company vehicle to choose greener models with a lower tax benefit.
And with this year’s Autumn Budget announced for 26 November, we can expect to see confirmation and/or further detail relating to these company car changes, – valuable when planning for your next vehicle change.
We’re here to help
If you’re thinking of changing vehicle and would like some advice on choosing the make and model and the best way to acquire the vehicle – whether that’s employer purchase or lease, or employee ownership – we’re here to help.
Contact Joy or one of the team by calling 0330 058 6559 or email hello@scruttonbland.co.uk
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