Worker automotive possession schemes (ECOS) broadly utilized by OEMs and automotive dealerships are set to begin incurring firm automotive tax from autumn 2026 underneath new legal guidelines drafted by HM Income & Customs.
The HMRC guidelines observe a pledge by Chancellor Rachel Reeves within the final autumn funds, and the Treasury estimates that it will likely be value an extra £275 million in tax soak up its first 12 months (2026/27), £220m in 2027/28, £195m in 2028/29 and £175m in 2029/30.
Using ECOS has declined through the years however they’re nonetheless broadly utilized by automotive producers and sellers for their very own staff, who can acquire a brand new automotive at a considerably discounted worth. The automobiles are then sometimes purchased again by the producer or supplier to safe good high quality used automotive inventory.
And for some companies, offering high-value automobiles with out triggering a automotive profit cost has been a giant a part of their worker reward technique.
HMRC estimates that the tax change will influence 76,000 staff at 1,900 firms, who at the moment obtain automobiles via an ECO scheme.
Implementation of the brand new guidelines will now be delayed for six months till October 6, 2026. That is to permit employers to familiarise themselves with the adjustments, make preparations and discussions with related staff, resolve the therapy of any particular instances corresponding to retired staff after which report autos offered via an worker automotive possession scheme as firm automobiles via payroll or transfer staff from the ECOS to an organization automotive scheme.
Ian McMahon (pictured), Cooper Parry’s head of automotive, mentioned: “When the Authorities introduced within the Autumn Price range that it needed to cease “contrived” worker automotive possession schemes, it gave the impression of a targeted, focused transfer. However now that the draft laws is out, it’s clear the influence shall be a lot wider. In brief: this isn’t nearly shutting down just a few intelligent schemes. This might sign the tip for all ECOS preparations.”
He mentioned HMRC’s explanatory notes make it evident that it’s the motor business which is underneath HMRC’s highlight, because it highlights automobiles which are returned after a specified mileage or interval to feed the almost new automotive market, and automobiles that stay a part of the employer’s inventory and can be found for take a look at drives.
“Our overarching steering for sellers and related companies is to evaluate the industrial influence as quickly as attainable. The place new starter provides are being made, guarantee any communications don’t depend on the supply of an ECOS automotive (or related) as a part of the T’s & C’s. Begin to wind down the publicity to the ECOS ‘fleet’ in a managed method. Take into account the deserves of a wage sacrifice automobile program to restrict the influence of the laws.”
Now could be the time to know how the laws will have an effect on the present setup, assess the fee and operational influence, and discover various choices that make sense for the enterprise.
Paul Taylor, managing director of Automobile Profit Options, mentioned that the proposed laws makes the motor automotive the one product within the UK {that a} producer or retailer can’t promote to their worker at or above value, and in some unspecified time in the future sooner or later comply with repurchase for a good market worth, with no taxable profit arising.
CBS highlighted that the laws doesn’t cease the sale of a brand new automobile to an worker or forestall them from being supplied with an related mortgage. Which means that there’s readability and clear path in direction of the long run design of automotive schemes.
What’s an Worker Automobile Possession Scheme?
In contrast to an organization automotive scheme, in an ECOS the worker purchases the automotive underneath a credit score sale settlement and meets the month-to-month finance and operating prices utilizing a mix of the revenue tax financial savings from now not having an organization automotive and the utmost tax-free mileage reimbursement for enterprise journeys underneath the Authorities’s Authorised Mileage Allowance Funds (AMAPs) scheme.
As a result of the worker, not the employer, owns the automotive, they’ve been in a position to keep away from firm automotive tax regardless of how a lot help or low cost the employer gives.
