ECOS Changes: How Pendragon Vehicle Management Can Help

The end of Employee Car Ownership Schemes (ECOS) - what does it mean?

The UK Government has confirmed its intention to close the Employee Car Ownership Scheme (ECOS) with new rules set to come into force in October 2026 but what does this mean?

For many businesses, ECOS is a way to offer vehicles to employees whilst not having to pay company car Benefit-in-Kind (BiK) tax. It’s estimated there are over 75,000 drivers and almost 2,000 businesses currently utilising this scheme, but this is about to change.

Why is the Government removing ECOS schemes?

The Government believe this is an important step towards sustainability but also fairness in taxation for employees who may be on other car schemes where they have to pay Benefit-in-Kind (BiK) tax.

Draft legislation drawn up by HMRC indicates it will generate an estimated £275 million in extra tax in the first full year of implementation with revenues set to decline over the following three years.

It’s anticipated that from October 2026, ECOS schemes where individuals can use the vehicle for private use and where the employee isn’t the registered keeper will fall under company car tax rules.

How will this impact businesses?

For a business that currently offers ECOS, this could cause several knock-on effects such as:

• Higher tax and NIC contributions for all parties.
• Increased Administration with existing schemes unwound.
• Potential retention challenges without the right viable scheme to replace an important work perk.
• Nearly-new vehicle market – ECOS has proven to be a key channel for the nearly-new vehicle market so could impact supply.

Overall, any business not considering an alternative solution now will be worse off come next year.

What should businesses do now?

With just over a year until these changes take effect, we suggest:

• Audit the current schemes – identify those who use ECOS and the financial implications.
• Evaluate an alternative – colleague car schemes ran through Salary Sacrifice or Contract Hire can prove to be a cost effective solution.
• Communicate with colleagues – there are plenty of rumours around ECOS so it is paramount to keep all colleagues informed.

How can Pendragon Vehicle Management help?

We at Pendragon Vehicle Management specialise in helping businesses adapt their fleet and colleague benefits. We are proud to partner with some of the UK’s leading employers offering innovative fleet solutions.

• Our Colleague Car Scheme powered by Salary Sacrifice is industry-leading with it proven to improve employee retention, drive recruitment and save both colleagues and employers on NI and taxes.
• Contract Hire – we have a diverse fleet of cars and vans, with our tailored approach and access to all brands in the UK plus our 150+ own stores under Lithia UK, our solution is on your doorstep.
• Consultancy – we can assess the impact of ECOS changes on your business and model the most cost-effective solution to keep your colleagues on the road.

Don’t Wait Until 2026

The closure of ECOS to UK employees could prove challenging but with this comes a great opportunity. Businesses who move quickly will benefit most and make the most of the tax advantages that comes with offering a salary sacrifice scheme for example.

If your business currently relies on ECOS, now is the time to plan for a future without it.

Speak to our team today and find out how we can help you.