The government is to implement measures to remove the tax benefits associated with employee car ownership (Eco) schemes from 6 October 2026.
This was included in one of the supporting documents for the draft Finance Bill 2025/26 published this week. The government has launched a consultation on the supporting documents, which will close on 15 September.
Eco schemes were designed to avoid benefit-in-kind charges by transferring car ownership to the employee on day one of the scheme, with payment made through a credit arrangement, often via a third party.
As outlined in the legislation, cars provided through in this way will be deemed as taxable benefits when made available on restricted terms.
During the Autumn Budget 2024, the government stated that it will close benefit-in-kind loopholes to prevent Eco schemes being used to provide a car for employees’ private use in a way that changes their income tax liability and employers’ national insurance contributions liability.
Caroline Harwood, head of employment tax at BDO, said: “HMRC has felt uncomfortable with Eco schemes for some time and the new provisions 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 Eco schemes should assess whether they will fall into the new provisions and, if so, evaluate the impact and quickly communicate it to their employees.”
Paul Taylor, managing director at Car Benefit Solutions, added: “After reviewing the legislation we believe that HMRC has focused solely on Eco schemes within the automotive industry and forgotten about the many corporate fleets which provide Eco [schemes] to their employees. Taking things to an extreme, under the draft legislation, it appears that if an employee purchased a car on a 10-year credit sale agreement and repaid 99.99% of its value from net pay, a £1 repurchase option would mean company car tax would be payable for the full term.”
