Expert view: HMRC to clamp down on Employee Car Ownership Schemes

The draft finance bill 2025/26 published on 21 July this year contained measures to remove the tax benefits associated with Employee Car Ownership Schemes (ECOS) from 6 October next year.

ECOS arrangements are interesting in that they are not governed by a single part of the tax/National Insurance legislation. Instead, various parts of tax law are drawn together to produce an arrangement under which a car can be provided to an employee in a similar way to a company car but without the benefit in kind charge.

In broad terms, ECOSs work by transferring ownership of the vehicle to the employee on day one of the scheme with payment being made through some form of credit arrangement.

The provision of the car and the credit facility may be arranged by a member of the employing group of companies or via a third party.

The employee will typically receive a new car on a regular basis and enjoy the convenience of central organisation of insurance and servicing.

Guaranteed future value 

These schemes have the look and feel of a company car scheme. In order to avoid the employment tax consequences of being part of a company car scheme, it is necessary for the arrangements to include the condition that a car will be used by the employee “without any transfer of the property in it”.

This is done by transferring ownership of the car on day one - normally with an agreement in place that the employee can sell the car back at a set price, often called the guaranteed future value. Clearly, this transfer is not without tax consequences, but the details will depend on the structure of the particular arrangement.

The schemes have been particularly attractive in the automotive sector where trade discounts on vehicles can mean significant savings.

HMRC has felt uncomfortable with ECOSs for some time as the provision of a vehicle with all the substance of a company car, but without the associated tax charge, does not fit with the spirit and purpose of the legislation. The new provisions to be in place from October 2026 seek to bring the arrangements into the taxable benefit in kind net.

This will be done by deeming provisions which will include cars and vans made available to the employee or a family member if the transfer is made under ‘qualifying’ arrangements.

These include where there are restrictions on private use, provisions for someone other than the employee to be the registered keeper, where set transfer provisions are used or other proscribed arrangements.

Employers offering ECOSs should assess whether they will fall into the new provisions and, if so, they will need to evaluate the impact and decide whether to continue to offer ECOS in their current form or move to a more typical company car structure. Whatever the decision, it will be important to perform careful financial modelling and communicate the decision to employees well in advance.