The government’s plan to end what it has called “contrived car ownership schemes” has rattled the UK’s automotive industry, which forecasts devastating consequences for itself and its workers if this becomes law.
The Employee Car Ownership Scheme (ECOS), which the government intends to end from 6 April 2026, differs from traditional salary sacrifice schemes in that the car is owned by the employee, not the employer.
Operated mainly by car makers and their dealers, ECOS enables an employee to buy a brand new car at a hugely discounted price. Monthly repayment bills are very low, with little or no interest charged.
Under the terms of the arrangement, the employee is required to sell the car back, typically after six months or 6000 miles. It’s then replaced by another.
Because the car is owned by the employee and so not deemed a company asset, the employee is not required to pay benefit-in-kind (BIK) tax or national insurance contributions.
As such, the government believes this arrangement is neither legitimate nor fair, despite ECOS users being subject to heavy limitations.
In her Autumn Budget, chancellor Rachel Reeves outlined measures to “level the playing field” because “this arrangement means those benefiting don’t pay company car tax which other employees pay”.
Speaking to Autocar, manufacturers said they had been given few details on the proposed changes and were still considering the government’s plans.
A spokesperson for Stellantis said the group was “speaking directly to the UK government on the impacts and to understand further details and timings”.
The Society of Motor Manufacturers and Traders (SMMT) said the chancellor’s announcement had come as a “complete surprise” after decades of the industry operating ECOS unchallenged.
The SMMT questioned Treasury estimates that taxing ECOS cars as employee benefits would raise £275 million in the 2026-27 tax year and a further £590m over the following three years, because it believes this income would come at the expense of VAT and VED (road tax) on new cars no longer being sold.
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Underlining the point made about remuneration packages: I enjoyed a scheme like this for a number of years and it is true that a brand new car every few months was a great benefit for someone like me who is a life-long petrolhead.
BUT: It was also clear that my employer considered the whole remuneration package when offering someone a job, promotion or inflationary pay increase. And a car scheme like this does not pay the bills or help raise a mortgage for example.
I always felt underpaid but it was a compromise I was personally prepared to make because of the car scheme but many colleagues would have been prepared to trade some of the car benefit for a higher salary.
It isn't a straightforward thing and anyone thinking industry people should just pay up are missing the full picture.
While I have some sympathy for those in the car selling business life for most of the rest of us haven't got the advantage they enjoy,and the millions the Government get back isn't that a significant amount compared to others like Hospitals etc, we at the moment have to swallow increasingly higher bills we have no choice, so suck it up and pay up just like us.