By October 2026, HMRC will introduce new rules designed to close tax loopholes within Employee Car Ownership Schemes (ECOS) and ensure Benefit-in-Kind (BIK) taxes are applied fairly. The removal of ECOS as a tax-efficient option will have a significant impact on both employers and employees, making it essential to plan ahead.
In this guide, we’ll break down what’s changing, what it means for you, and how to make the most of alternative options – whether you’re managing a fleet or driving one.
What are ECOS and Credit Sale?
Before we debunk the above, it helps to know more about Benefit-in-Kind. BIK is a tax applied when an employee receives a non-cash benefit from their employer, such as a company car that can be used for personal journeys. The BIK value is calculated based on:
- The car’s list price (including optional extras)
- Its CO₂ emissions and fuel type
- The employee’s income tax bracket
At Car Leasing Made Simple, our business car lease listings provide the BIK price to help you make an informed decision.
ECOS (Employee Car Ownership Schemes) are designed to avoid these Benefit-In-Kind charges, essentially making it more affordable for both the employee (the driver) and the business (the fleet manager). This scheme transfers the ownership of the vehicle to the employee on day one, with payment being made through a third-party arrangement – credit sale schemes.
Credit Sale Schemes allow employees to avoid paying BIK tax on fleet vehicles. Credit Sale agreements allow employees to drive fleet cars that aren’t held or registered under the business, but rather through a separate provider.
What the BIK reclassification means for both drivers and employers
As the UK government cracks down on tax loopholes being used for fleet vehicles, both Credit Sale Schemes and Employee Car Ownership Schemes will be reclassified under BiK tax agreements. But what does this mean for you? Whether you’re an employee driving the car or an employer with a fleet of vehicles, let’s break it down:
Employees:
- Higher Tax Bills: As ECO schemes are reclassified, employees will have to pay BIK tax on their vehicles, which will have a greater impact on their monthly income.
- Less Flexibility: Drivers may lose the flexibility they had with ECOS. For example, some employees may find a BIK 2026 car more valuable than others – employees may prefer another type of benefit over a company car. Drivers may also now have to make the switch to electric or hybrid cars, which may not be everyone’s first choice.
- Shift towards low-emission vehicles: EVs and hybrid cars will have a lower BIK tax, so drivers will be encouraged to choose greener options, with petrol and diesel vehicles becoming more expensive. This might not be ideal for some drivers who prefer a specific car or type of engine.
- Impact on take-home pay: BIK tax is deducted from take-home salary, which means drivers are likely to see a change in the amount they make each month.
Employers:
- Admin burden: Because ECOS cars are now being classified as BIK cars, companies will need to calculate changes, as well as handle HMRC reporting and compliance. Other tasks may also include accounting, payroll and HR.
- Rising fleet costs: Companies may face higher National Insurance (NI) contributions on the BIK value of cars. High-emission vehicles will also become more expensive to operate.
- Increased planning: ECOS fleet planning will need to be revisited as changes come into place in October 2026 to make way for BIK and NI contributions. General budgeting and forecasting for future taxation will be essential.
- Fleet strategy: Employers will need to revisit their fleet strategy as electric and low-emission vehicles become more popular under BIK schemes. Fleets with mostly petrol or diesel cars or that are made up of high-emission vehicles may need to be reviewed.
- Employee retention: Employees will receive higher tax bills from October 2026, so it’s essential that this is communicated between employers and employees. Management should also focus on guidance and support for employees, and potentially consider other benefits that could be helpful to the workforce.
How will your fleet cars be affected : A comparison
Whether your fleet is made up of petrol or diesel cars, or an alternative fuel like EVs and PHEVs, find out how your vehicles will be affected when the new Benefit-In-Kind 2026 rates come into play.
| Vehicle type | CO2 emissions | Current BIK rates | Notes |
| Pure EV | 0g/km | 3% (2025/26) | Small annual increases after 2025/26 – remains very tax-efficient |
| Plug-in Hybrid (PHEV) | 0-50g/km | 6% | Gradual increases expected – still lower than petrol/diesel vehicles |
| Petrol/diesel | 25-37g/km | 25-37% | High BIK rate makes these much less tax-attractive. Costs rise significantly for employees |
Fleet Car Comparison: Now Vs. October 2026
Let’s compare fleet cars currently on the Employee Car Ownership Scheme with how figures will look after the new fleet tax changes are implemented:
*based on a mid-range petrol car (£30,000 list price, 130g/km CO2)
| Current (2025) | Post-ECOS changes (Oct 2026) | |
| Scheme | ECOS – Employee ‘owns’ car via employer | Treated as a transitional company car |
| Taxable benefit | 0-2% | 25% BIK rate (petrol car) |
| Employee tax cost (20% income tax bracket) | £0-£150 per year | £1,500/year |
| Employee tax cost (40% income tax bracket) | £0-£300 | £3,000 per year |
| Employer NI | Minimal | £150-£300 |
| VAT/Fleet costs | As per the agreement | As per the company car leasing |
| Vehicle choice impact | Flexible ECOS options | High-emission vehicles become expensive |
How to prepare your business for fleet car taxation changes
Having to implement changes to the way you pay for and manage your fleet can seem daunting, but there are a few steps you can take to prepare for the changes to Employee Car Ownership Schemes, including:
Review your fleet: Firstly, you’ll need to review your current fleet arrangements, including ECO schemes. Audit your vehicles to find out which employees will be most affected. Any cars that aren’t registered under the employee’s name or are restricted in private use will be taxed as company cars.
Audit your fleet: Once you’ve reviewed your current fleet, you’ll need to assess what these tax implications mean for your company. Calculate BIK costs for employees using ECOS, and update the total cost of ownership (TCO) to include these new changes. You can also work out which vehicles are going to be affected by higher taxation, and consider your alternatives.
Explore your options: Weighing up your options is essential to prepare for these new rules. An option could be Salary Sacrifice Schemes, where employees exchange part of their salary for a car. This is a great option for companies looking to introduce EV and hybrid lease cars, as they come with lower BIK rates.
Update policies: You’ll need to update and amend any policies that might mention Employee Ownership Car Schemes to reflect the new changes that are coming into place. As well as this, make sure that HR and finance teams are aligned with the changes, to ensure reporting and compliance are taken care of.
Communicate with your teams: Make sure your employees know the changes that are coming into place and how they will affect them. Offer support for employees when switching schemes and ensure HR and admin teams know how to report on the change.
Opportunities to optimise your fleet
While the changes to ECO Schemes mean you may need to reconsider how you finance your fleet, it’s also an opportunity to optimise your company cars and ensure you’re complying with the latest taxation legislation. Here are a few ways to get the best from your fleet post-October 2026.
- Lower-emission vehicles: Switching to electric and hybrid vehicles means not only will your fleet benefit from lower BIK taxation, but it also gives you the chance to reduce your business’s carbon footprint.
- Salary Sacrifice schemes: Consider Salary Sacrifice schemes to allow your employees to drive a company car in a way that complies with new legislation.
- Build relationships: As October 2026 approaches, the market for BIK vehicles is likely to increase, so building relationships with reputable business car providers sooner rather than later is essential.
- Provide a seamless transition: Businesses should provide packages to help employees with the transition, stating why the change is happening and some of the benefits of BIK and alternatives.
At Car Leasing Made Simple, we can help make the transition to BIK vehicles, well, simple. We have a range of business lease options available, depending on your preferences, from electric and hybrid options, the latest SUVs, as well as compact city cars from your most trusted manufacturers.
Are you a fleet manager looking for some professional advice in preparing for the upcoming ECO Scheme changes in 2026, we can help make your fleet management simple – simply get in touch with a member of our team today.