A newly published draft clause in the Finance Bill 2026 sets out to redefine the tax treatment of cars and vans made available to employees — particularly where vehicle ownership is ultimately transferred to the employee. The proposed amendments to Chapter 6 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) represent a potentially significant development for employers offering car ownership schemes and employees seeking more accessible paths to vehicle ownership.
Shifting the Tax Perspective on Ownership
Under current rules, employee vehicle benefits generally assume that the employer retains ownership of the vehicle. However, many modern car schemes — especially salary sacrifice or lease-to-own arrangements — allow employees to eventually take ownership. These arrangements have previously operated in something of a grey area, often without clear alignment to tax treatment.
The draft legislation proposes to change this by formally recognising arrangements where cars or vans are made available to employees with an eventual transfer of ownership. New Section 116A would treat such vehicles as “made available” by the employer until the scheme concludes — aligning tax treatment more closely with traditional employer-provided vehicles.
Qualifying Conditions
For an arrangement to fall under this new category, it must satisfy at least one of several criteria:
- Include restrictions on private use;
- Name someone other than the employee as the registered keeper;
- Allow the employee to transfer the vehicle onward under pre-agreed terms;
- Or fall under a Treasury-specified scheme.
This flexibility opens the door for innovative employee car ownership models while ensuring such schemes remain structured and transparent.
Timing and Implementation
The amendments are due to take effect from the 2026–27 tax year, with a transitional provision ensuring that the rules do not apply retrospectively to periods before October 6, 2026.
This lead time gives employers and fleet providers a window to reassess existing schemes, and potentially restructure them to qualify for treatment under the new provisions.
Implications for Employers and Employees
If implemented as drafted, the legislation could make employee car ownership schemes more tax-efficient, especially for lower-emission vehicles, which often benefit from reduced benefit-in-kind (BIK) rates. It may also give employers more flexibility in offering attractive benefit packages without facing disproportionate tax liabilities.
However, the inclusion of regulatory discretion — allowing the Treasury to define qualifying schemes — suggests the government wants to keep a tight rein on potential tax leakage or abuse.
Next Steps
As this is part of a draft finance bill, stakeholders are encouraged to engage in the consultation process. Tax professionals, HR leaders, and vehicle leasing companies in particular should review the potential impact and contribute feedback to shape the final legislation.
