What Employers and Employees Need to Know Before April 2026
The UK government has announced a major policy shift affecting Employee Car Ownership Schemes (ECOS), set to take effect from April 6, 2026. These changes are aimed at curbing tax avoidance through certain ECOS structures while protecting legitimate arrangements.
Why Are ECOS Changing?
HM Revenue & Customs (HMRC) has identified a growing trend of ECOS being used to avoid Benefit-in-Kind (BiK) tax obligations associated with company cars. In particular, some schemes have been set up in a way that appears to be contrived for tax purposes. Common arrangements include employers or third parties “selling” cars to employees via interest-free or low-interest loans with no fixed repayment schedule. After a short period, the vehicle is often repurchased, allowing the employee to benefit from use of the car without triggering BiK tax charges.
These structures, the government says, do not reflect genuine ownership and are primarily designed to exploit tax loopholes. As a result, legislation is being introduced to prevent such practices.
What’s Changing?
From April 2026, new legislation will:
- Disallow ECOS structures that do not reflect genuine ownership, such as those lacking clear repayment terms or set interest rates.
- Close loopholes where vehicles are “sold” and quickly repurchased, allowing employees to use them without triggering company car tax.
- Ensure proper tax treatment by aligning ECOS with traditional company car benefits where appropriate.
Who Is Affected?
These changes primarily target employers using ECOS as an alternative to standard company car schemes, especially in sectors like retail, manufacturing, and automotive sales. However, legitimate ECOS arrangements are not under threat. According to HMRC, schemes that involve:
- Regulated loans
- Fixed repayment terms
- Interest rates above the official rate used to calculate BiK
…will remain compliant and unaffected by the new rules.
What Should Employers Do Now?
Although the changes won't take effect until 2026, businesses are advised to act early:
- Review existing ECOS structures to identify any that might fall foul of the new legislation.
- Seek advice from tax professionals to ensure current and future schemes remain compliant.
- Monitor HMRC guidance for further clarification, especially around what constitutes “genuine ownership.”
With the automotive benefit landscape evolving rapidly, proactive planning will be key to avoiding disruption and additional tax liabilities.
Final Thoughts
The ECOS reforms are part of a broader effort by the Treasury to ensure fairness and transparency in employee benefits. While they will close down certain tax-avoidance practices, most companies operating legitimate schemes should experience minimal impact. That said, preparation is essential. Now is the time to evaluate your policies and engage with advisors to navigate the changes confidently.
