Policy paper

Changes to Employee Car Ownership Schemes (ECOS)

Published 26 November 2025

Who is likely to be affected

Businesses and employers that provide vehicles through Employee Car Ownership Schemes (ECOS), and their employees that are provided with vehicles through these arrangements.

General description of the measure

This measure amends the benefit in kind rules so that vehicles provided through ECOS arrangements will be deemed as taxable benefits when made available on restricted terms, outlined in the legislation. Arrangements existing prior to commencement will continue without a change in treatment until the earlier of the arrangement being varied, renewed, or 6 April 2032.

The measure also provides an exemption from the benefit in kind rules for vehicles provided on arm’s length terms within the motor industry.

Policy objective

Private use of a company car is a valuable benefit, and it is right the appropriate tax is paid on it. This measure will ensure fairness with other taxpayers, reduce distortions in the tax system, and it reinforces the emissions-based company car tax regime which incentivises the take-up of zero emission vehicles.

To support the automotive industry and provide employers more time to adjust to the changes, the government has delayed implementation of the measure to 6 April 2030 and introduced transitional rules.

Background to the measure

This measure was announced at Autumn Budget 2024. A draft copy of the legislation for technical consultation was published on 21 July 2025 as part of Legislation Day.

The measure announced at Autumn Budget 2024 with an operative date of 6 April 2026. As part of the publication of draft legislation on 21 July, the government announced its intention to delay this to 6 October 2026. The government is now confirming its intention to further delay the operative date to 6 April 2030.

Detailed proposal

Operative date

The measure will take effect from 6 April 2030.

Current law

Current law is included in Chapter 6 Part 3 of the Income Tax (Earnings & Pensions) Act (ITEPA) 2003.

Proposed revisions

Legislation will be introduced make the following changes.

Sections 114 to 118 ITEPA set out when a car or van is made available for private use and a benefit charge may arise.

Section 114 and section 116 will be amended to deem vehicles provided through qualifying arrangements as subject to chapter 6, they are classified as made available for private use and a benefit charge applies.

Section 116A will be inserted into chapter 6. It sets out that qualifying arrangements mean the transfer of the ownership of the vehicle to the employee where one or more of the following criteria are met:

• where there are restrictions on the employee’s private use of the vehicle
• where the employee is not the registered keeper of the vehicles
• where, as part of the arrangement, there is a set buyback or onward sale arrangement

Subsection 117(4) will be inserted into chapter 6. It sets out an exception from chapter 6 for cars or vans made available on arm’s length terms within the motor industry.

Summary of impacts

Exchequer impact (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
—	—	—	—	—	+15

This measure combines a measures from:

• Autumn Budget 2024 — Ending contrived car ownership schemes: closing loopholes in Employee Car Ownership Schemes to prevent them from being used to circumvent Company Car Tax from April 2026, which is set out in Table 4.2 of Budget 2025
• Budget 2025 — Support for British automotive industry: Delay bringing Employee Car Ownership Schemes within the benefit in kind rules from 6 April 2026 to 6 April 2030, with a two year transition period which is set out in Table 4.1 of Budget 2025

Both costings have been certified by the Office for Budget Responsibility.

Macroeconomic impact

This measure is not expected to have any significant overall macroeconomic impacts. However, after April 2030, the measure is expected to have an economic impact on businesses and employers that provide vehicles through ECOS and afterwards sell the vehicles into the ‘nearly new’ market. This impact is predominately concentrated in the motor manufacture and motor dealership industries.

Impact on individuals, households and families

This measure will impact an estimated 80,000 individuals who currently receive cars through ECOS as they will become liable for the Income Tax associated with the benefit.

The announced delay means individuals will not be impacted until 6 April 2030 This means they will have time to seek alternative arrangements with their employers. Individuals still receiving a vehicle through ECOS after 6 April 2030, subject to the transitional arrangements, may need to pay the appropriate benefit in kind charge.

Impacted employees may choose to retain the current vehicle through a normal car scheme, choose a lower emitting (lower tax) vehicle or choose to go without a company car altogether. This measure is not expected to impact on family formation, stability or breakdown

This measure is expected overall to have no impact on individual’s experience of dealing with HMRC as the change will not result in them having direct contact with HMRC. Where their employer continues to provide a vehicle through an ECOS arrangement, the scheme will be taxable after 6 April 2030.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. This measure is expected to impact on individuals who are provided with vehicles through ECOS. If a protected group is overrepresented in this population, then it will be disproportionately impacted.

Those aged 35-64 (79%) are overrepresented in the population who receive a company car compared to their prevalence in the UK adult population (50%). Males are also overrepresented (79%) compared to the UK adult population (50%), as are those from a White — English, Welsh, Scottish, Northern Irish or British ethnic background (88%, compared to 82% in the UK adult population).

Where data were available no other protected characteristic group was estimated to be overrepresented in the population affected by this measure.

Administrative impact on business including civil society organisations

This measure will have an effect on the 1,900 medium and large companies within the motor manufacture and motor dealership industries and 200 small and medium companies in other sectors impacted by the measure, but the additional administrative burden of interacting with HMRC is assessed to be negligible.

Employers will need to familiarise themselves with the changes, make preparations and discussions with relevant employees, resolve the treatment of any specific cases, for example retired employees and then record vehicles provided through ECOS as company cars through payroll or move employees from an ECOS arrangement to a normal company car scheme. It is not anticipated there will be any ongoing costs since the majority of employers will already operate a payroll and provide benefits.

The announced delay to 6 April 2030 will provide additional time for employers to familiarise themselves with the changes, restructure their arrangements where relevant and payroll any benefits.

This measure is not expected to disproportionately impact civil society organisations.

This measure is expected overall to affect businesses’ experience of dealing with HMRC as the change will require them to account for ECOS cars through payroll like they would for normal company cars. Clear guidance will be provided to ensure that companies are aware of the change in legislation prior to the change taking place.

Operational impact (£ million) (HMRC or other)

HMRC will implement these changes as part of business-as-usual activity and at minimal cost. Changes are to legislation and guidance only.

Other impacts

This measure supports the government’s climate change objectives by bringing more people into scope of the emissions-based company car regime which is designed to incentivise the take up of zero-emission vehicles. This will in turn reduce carbon dioxide emissions due to transport and improve air quality.

Other impacts have been considered, and none have been identified.

Monitoring and evaluation

The measure will be monitored and assessed alongside other measures announced by the government at this and previous fiscal events.

Further advice

If you have any questions about this change, email the Employment Benefit and Expenses Policy Team at policyemploymentbenefitsexpenses@hmrc.gov.uk.