Policy paper

Changes to Employee Car Ownership Schemes (ECOS)

Published 21 July 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

As announced at Autumn Budget 2024, the government is closing loopholes in the benefit in kind rules, to prevent ECOS being used to provide a car for the employee’s private use in a way which circumvents the employee’s Income Tax liability and the Employer’s National Insurance contributions liability.

Vehicles provided through these arrangements will be deemed as taxable benefits when made available on restricted terms, outlined in the legislation.

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.

Background to the measure

The government’s intention to legislate to bring ECOS into scope of the benefit in kind rules as company cars, was announced at Autumn Budget 2024.

Detailed proposal

Operative date

The measure will take effect from 6 October 2026.

Current law

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

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 ITEPA, 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

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
Empty	Empty	+275	+220	+195	+175

These figures were set out in Table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024. These figures will be updated to reflect the 6-month delay to the originally announced implementation date at a future fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will impact an estimated 76,000 individuals who currently receive cars through ECOS as they will become liable for the Income Tax associated with the benefit. These individuals may now need to pay the appropriate benefit in kind charge or seek an alternative arrangement with their employer. 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 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 now be taxable.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. Company car use will vary by occupation, and if a protected group is overrepresented in the population, then it will be disproportionately impacted. Recipients of company cars are estimated to be predominantly men; therefore, this group is likely to be disproportionately impacted by this measure.

Data is not currently available for the other protected characteristics of individuals impacted by this measure, therefore the equality impacts cannot be conclusively determined.

Impact on business including civil society organisations

This measure will have a negligible administrative impact on around 1,900 medium and large companies within the motor manufacture and motor dealership industries. 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.

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.

This measure is not expected to impact civil society organisations. 

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 policy will be kept under review through regular communication with taxpayer groups affected by the measure.

Further advice

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