Hidden in the small print of the Budget was a pledge to end what the Treasury labelled “contrived” employee car ownership (ECO) schemes.
The Government will publish draft legislation relating to what it says are “loopholes in car ownership arrangements”, through which an employer or a third party sells a car to an employee, often via a loan with no repayment terms and “negligible” interest, then buys it back after a short period.
While ECO schemes are not as widely used as they were in the past, there are still a number of employers who operate such schemes for their employees.
They are, for example, widely used by car manufacturers and dealers for their own employees, who can obtain the vehicle at a substantially discounted price.
The Treasury estimates that it will be worth an additional £275 million in tax take in its first year (2026/27), £220m in 2027/28, £195m in 2028/29 and £175m in 2029/30.
An ECO car looks and feels like a company car with one significant difference – the employee, not the employer, owns the car.
As ownership rests with the employee, there can be no company car benefit no matter how much support or discount the employer provides.
The employee purchases the car under a credit sale agreement and meets the monthly finance and running costs using a mixture of the income tax savings from no longer having a company car and the maximum tax-free mileage reimbursement for business journeys under the Government’s Approved Mileage Allowance Payments (AMAPs) scheme.
Currently, this is 45p per mile for the first 10,000 miles and 25p per mile thereafter for using a privately owned car on corporate business, all of which are deemed to be tax free. Some companies also may provide an employee top-up via the payroll.
With an ECO scheme, there is no income tax or national insurance contributions (NICs) to pay on the AMAP payments received. Any employer top-up, however, is paid via the payroll and is subject to income tax and employee’s NIC in full.
Employers also have to pay Class 1 NIC (currently at 13.8% but due to rise to 15%) on the employee top-up, while it is possible to recover VAT on the fuel element of the full business mileage rates, provided receipts are kept.
The Government says in the Autumn Budget’s red book: “This arrangement means those benefiting don’t pay company car tax which other employees pay, and so this measure will seek to level the playing field.”
The changes will take effect from April 6, 2026.
Andrew Timpson, employment tax partner at audit, tax and consulting firm RSM UK, says that the “jewel in the automotive industry crown for employee benefits” is to provide employees with a new car on a fairly regular basis with low to no tax impact.
“This is achieved by loan arrangements which have a more favourable tax implication than traditional company car provisions and has been the mainstay in the industry for many generations,” he explained.
“The draft legislation will certainly be challenged by the industry as it relies heavily on this model for more than just a good benefit to provide its employees.
“If the Government does push this through, it will be the end of an era and another blow to an industry whose journey constantly feels like an uphill battle.”
Employing case studies and expert advice, Fleet News examines ways in which you can take pre-emptive action to reduce the chances of an incident occurring, deploy technology to minimise incident severity, and have a clear process to manage the aftermath of an incident.
Gareth has more than 20 years’ experience as a journalist having started his career in local newspapers in the 1990s. Prior to joining Fleet News in 2008, he worked in the public sector as a media advisor and is currently news editor at Fleet News.
No comments have been made yet.
Register to receive our range of digital content, including newsletters and special reports.
Fleet News, Media House, Lynch Wood Peterborough, PE2 6EA
© Bauer Consumer Media Ltd – Media House, Lynch Wood, Peterborough, PE2 6EA – Registered number 01176085
www.fleetnews.co.uk is the leading website for the UK fleet sector with an 95% market share (average UK site visits in January 2025), according to SEMRush. H Bauer Publishing are authorised and regulated for credit broking by the FCA (Ref No: 845898)
By submitting any material to us you are confirming that the material is your own original work or that you have permission from the copyright owner to use the material and to authorise Bauer Consumer Media to use it as described in this paragraph. You also promise that you have permission from anyone featured or referred to in the submitted material to it being used by Bauer Consumer Media. If Bauer Consumer Media receives a claim from a copyright owner or a person featured in any material you have sent us, we will inform that person that you have granted us permission to use the relevant material and you will be responsible for paying any amounts due to the copyright owner or featured person and/or for reimbursing Bauer Consumer Media for any losses it has suffered as a result.