Updated Rules Now Published for Changes to ECOS Cars

HM Revenue and Customs (HMRC) has introduced new rules concerning the tax treatment of cars and vans supplied for private use under qualifying Employee Car Ownership Schemes (ECOS).

These changes will impact businesses and employees who use ECOS arrangements. Announced in the Autumn Budget of 2024, this measure is intended to address loopholes in the benefit-in-kind (BiK) tax regulations that previously allowed some ECOS vehicles to avoid proper taxation and enabled employers to sidestep National Insurance contributions.

From 6 October 2026, vehicles provided under these arrangements—and made available on certain restricted terms as defined in legislation—will be treated as taxable benefits, aligning their treatment with company cars under the benefit-in-kind rules. The government’s objective is to ensure company car tax fairness and prevent distortions in the tax system.

The legislation specifies that a qualifying arrangement involves transferring vehicle ownership to an employee when any of the following criteria apply:

• There are restrictions on the employee’s private use of the vehicle
• The employee is not the registered keeper of the vehicle
• The arrangement includes a fixed buyback or onward sale provision

Draft legislation will amend relevant parts of the Income Tax (Earnings & Pensions) Act 2003 to bring ECOS under these rules. There will be no transitional provisions; thus, any vehicle under such an arrangement as of October 2026 will be subject to the updated tax treatment. Businesses and employees using these schemes should review arrangements soon and seek professional advice to ensure continued compliance.