Employee Car Ownership Scheme changes explained

Have you heard about Employee Car Ownership Scheme (ECOS) changes, effective from 6th October 2026? If not, and you’re an employer or employee that uses ECOS, you may need to know what’s happening. In this blog, we look at the changes and at how they may affect you.

What is the Employee Car Ownership Scheme?

The Employee Car Ownership Scheme is different from a normal company car scheme.

Under a normal company car scheme, the car is owned or leased by the employer. The employee is then allowed to use it for business purposes and, frequently, private purposes. However, the employee needs to pay Benefit-in-Kind (BIK) tax based on the car’s list price, CO₂ emission and fuel type. The employer also pays Class 1A National Insurance on the taxable value.

The Employee Car Ownership Scheme works in a very different way. Under ECOS, the car is transferred to the employee from day one. They purchase it under a credit sale agreement. They do not have to pay BIK tax because the car isn’t a company car. However, the employee will usually receive mileage allowances or other reimbursements when they use the car for work. At the end of the scheme, the employee can buy the car outright or the employer might buy it back.

Why is ECOS changing?

Chancellor Rachel Reeves announced in the Autumn 2024 Budget that the government would introduce legislation to close loopholes in ECOS. The main motivation was to stop employers and employees circumventing the Benefit in Kind charge.

ECOS is particularly popular with employers who are either car manufacturers or car dealerships. When they sell cars to employees at a major discount, there’s no BIK because the sale price is below the cost of manufacture or the landed cost of the vehicle.

There are further benefits to automotive sector employers under this arrangement. They will sometimes buy the car back at a specified mileage, allowing it to get stock for the ‘nearly new’ car market. It’s also suggested that, in some cases, cars have remained listed as part of an employer’s stock and have even been available for test drives!

What are the changes?

Government has drafted new legislation, which was announced on 21st July 2025. This states that an Employee Car Ownership Scheme will be subject to normal company car rules (and Benefit-in-Kind charges will apply) when one or more of the following apply:

• 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

The final point is significant. As it effectively gives the Treasury the power to tweak regulations, it could mean the end of ECOS. We’ll have to wait and see on that one!

What impact will the changes have?

Government estimates that the changes will affect some 76,000 individuals who receive cars via ECOS. This is because they’ll become liable for the tax associated with the benefit. It’s estimated that the change will also add £275 million to Treasury coffers during 2026-27 and £220 million the year after.

Can you help me with the ECOS changes?

If you’re an employer operating an ECOS scheme, we can help you review the way you supply company cars. For example, you can reduce the BIK employees pay by offering lower emitting vehicles or electric cars. A salary sacrifice scheme may also provide significant benefits. Talk to your THP account manager today to discuss your options.