What the New ECOS Changes Mean for Employers and Employees

What the New ECOS Changes Mean for Employers and Employees

From 6 October 2026, Employee Car Ownership Schemes (ECOS) will be reformed. If you provide vehicles through ECOS, or you work through one, you’ll need to understand how the changes affect taxation, company benefits, and decision-making. Here’s a breakdown of what’s changing, why it matters, and what you should do now.

What is ECOS, and what’s changing

ECOS refers to arrangements where employees obtain ownership of a vehicle via a qualifying scheme. Currently, these schemes can sometimes avoid certain benefit-in-kind (BiK) tax charges because of how the ownership, use, or restrictions are structured.

From 6 October 2026, legislation will change so that many vehicles supplied under ECOS will be treated more like company cars under the Income Tax (Earnings & Pensions) Act 2003 (ITEPA).

Specifically, new rules mean vehicles will be classed as providing a taxable benefit if they meet one or more of these criteria:

  • Private use is restricted in some way.
  • The employee is not the registered keeper.
  • There is a set buy-back or onward sale arrangement in the scheme.

In other words, even if the vehicle is part of an ownership scheme, if any of these conditions apply, the benefit will now be taxable under company car (benefits in kind) rules.

Why the changes are happening

There are a few motivations behind this reform:

  • Fairness: So that employees getting cars via ECOS pay similar tax treatment to those with standard company cars.
  • Reducing tax distortions: Avoiding scenarios where certain ownership schemes could be used to reduce or avoid benefit charges.
  • Environmental objectives: These changes strengthen the emissions-based regime, making low or zero-emission vehicles more attractive from a tax perspective.

Who will be affected

  • Employers who currently provide cars under ECOS will have to change how they account for these vehicles in payroll and benefits.
  • Employees who receive vehicles under ECOS will likely see changes in their tax liabilities. Approximately 76,000 individuals are expected to be affected.
  • Companies in the motor manufacturing or dealership sectors may also be involved, given their connection with supplying or supporting ECOS arrangements.

What the impacts look like

  • Financially for individuals: Some will pay more in income tax (via BiK) once the changes take effect. Those with high-emission vehicles may find the costs significantly more. Others may switch to low or zero emission vehicles to reduce tax.
  • For businesses: Need to update HR/payroll systems, adjust how benefit‐in‐kind is reported, and perhaps renegotiate or redesign existing ECOS arrangements.
  • Broader Impacts: Increased tax revenue for the Exchequer (hundreds of millions per year), modest administrative burdens, and environmental benefit via incentives for cleaner vehicles.

What to do now

To prepare for ECOS changes, employers and employees should consider the following steps:

  1. Audit existing ECOS arrangements
    Look at all current car schemes to identify those that will meet one or more of the new criteria (restricted private use, not registered keeper, set buy-back etc.).
  2. Estimate the tax impact
    Model what the BiK tax could be for affected employees under the new rules. This can help both parties decide whether to continue, adjust, or end an ECOS arrangement.
  3. Consider switching to cleaner vehicles
    Vehicles with lower emissions tend to incur lower BiK charges. Moving towards electric or ultra-low emission vehicles could help reduce the tax burden.
  4. Review policies and contracts
    Contracts with buy-back or onward sale clauses may need to be revised. Similarly, policies around private use, maintenance, registration etc.
  5. Communicate ahead of time
    Employers should let employees know what’s changing, how it may affect them, and what options are available. Transparency will help avoid surprises.

Ensure payroll & HR are ready
Systems will need to be able to handle taxable benefits in kind for ECOS vehicles; reporting and documentation updated.

Key dates and next steps

  • Implementation date: 6 October 2026.
  • Now is a good time to start reviewing current arrangements.

Why Pecunia Pro can help

At Pecunia Pro, we work with construction‐industry employers and employees on tax, benefits, and compensation strategies. We can:

  • Review your current ECOS arrangements and highlight where risk lies
  • Do financial modelling to show your tax exposure under the new rules
  • Suggest vehicle-fleet strategies to reduce BiK liabilities, especially via lower emission vehicles
  • Help update contracts, policies and payroll or HR processes for compliance