With the Treasury’s announcement that Employee Car Ownership Schemes (ECOS) will face significant tax changes from October 2026, businesses across the UK are scrambling to understand what this means for their employee benefits packages.
But here’s the thing: whilst one door is closing, another is swinging wide open. The end of ECOS as we know it represents a golden opportunity for both employers and employees to embrace a superior alternative – salary sacrifice.
What Exactly Are ECOS and Why Are They Changing?
Employee Car Ownership Schemes have been a popular way for employers to provide vehicles to staff while avoiding the benefit-in-kind tax charges associated with traditional company cars.
Under these arrangements, employees technically “own” their vehicles but under restricted terms that often include limitations on private use, employer-controlled registration, and predetermined buyback arrangements.
The government has identified these schemes as “contrived” arrangements that allow employees to avoid paying appropriate tax on what is essentially private use of a company-provided vehicle.
From 6 October 2026, vehicles provided through ECOS will be deemed taxable benefits under the same rules that apply to traditional company cars.
The Numbers Behind the Change
The government expects this change to affect approximately 76,000 individuals across 1,900 medium and large companies, primarily in the motor manufacturing and dealership sectors. The Treasury anticipates raising £275 million in the first year alone, highlighting just how significant these arrangements have become.
What This Means for Your Business
If your company currently operates ECOS arrangements, you’ll need to make some important decisions before October 2026:
- Option 1: Continue with ECOS – Your employees will now face benefit-in-kind charges just as they would with traditional company cars.
- Option 2: Switch to traditional company car schemes – Similar tax implications but with established processes
- Option 3: Embrace salary sacrifice – A proven alternative that offers genuine tax advantages for both employer and employee.
Enter Salary Sacrifice: The Smart Alternative
Whilst ECOS arrangements are being tightened up, salary sacrifice schemes continue to offer legitimate, government-backed tax savings – particularly for electric and plug-in hybrid vehicles.
How Salary Sacrifice Works
Under a salary sacrifice arrangement, employees give up part of their gross salary in exchange for a vehicle. Because the sacrifice is made before tax and National Insurance are calculated, both parties save money:
- Employees pay no income tax or National Insurance on the sacrificed amount
- Employers save on National Insurance contributions
- Electric vehicle users benefit from extremely low benefit-in-kind rates (3% for pure EVs – this will continue to rise annually until 2029/30).
Comparing ECOS vs Salary Sacrifice
Let’s look at a practical example using a popular executive saloon worth £40,000:
Under ECOS (post-October 2026)
- Employee faces full benefit-in-kind tax as if it were a company car
- Employer bears compliance and residual value risks
- Complex administration requirements
- Uncertain savings for employee
Under Salary Sacrifice
- Clear, predictable tax savings for employee
- No residual value risk for employer
- Established HMRC-approved framework
- Additional savings on electric vehicles
Why Retailers Should Take Notice
Less than 5% of franchised retailers nationwide currently offer salary sacrifice schemes to their customers – a statistic that represents enormous untapped potential.
As Lash Saranna, CEO of EZOO, explains: “There is huge potential for franchised retailers to sell more vehicles with full after sales service, finance and customer retention for resale at the end of the term.”
The Retailer Opportunity
With ECOS changes forcing companies to reconsider their vehicle benefits, retailers who can offer salary sacrifice solutions will be perfectly positioned to:
- Capture new business from companies switching away from ECOS
- Increase average transaction values as salary sacrifice makes higher-spec vehicles more affordable
- Secure ongoing relationships through full-service packages including maintenance
- Boost electric vehicle sales by maximising the tax advantages
The Electric Vehicle Advantage
The timing of these ECOS changes couldn’t be better for promoting electric vehicle adoption. The government’s emissions-based company car tax regime heavily favours zero-emission vehicles:
- Pure electric vehicles: 3% benefit-in-kind rate (expected to increase annually until at least 2029/30)
- Plug-in hybrids (0-50g/km CO2): 6% rate
- Conventional petrol/diesel vehicles: 25-37% rates
Combined with salary sacrifice, electric vehicles become incredibly attractive propositions for employees whilst supporting your business’s sustainability goals.
Making the Transition: Your Action Plan
For Employers Currently Using ECOS
- Audit your current arrangements: Identify which vehicles and employees will be affected.
- Calculate the true costs: Compare ECOS continuation with salary sacrifice alternatives.
- Engage early with providers: The market will become increasingly busy as October 2026 approaches.
- Communicate clearly: Help employees understand their options before changes take effect.
For Retailers and Fleet Providers
- Develop salary sacrifice expertise: This will be a key differentiator as demand increases
- Create transition packages: Help ECOS users move seamlessly to salary sacrifice
- Focus on electric vehicles: Maximise the tax advantages available
- Build partnerships: Work with established salary sacrifice providers to offer complete solutions
As One Door Closes, Another Opens
The end of ECOS as we know it isn’t a crisis – it’s an opportunity. Salary sacrifice offers a transparent, government-approved way to provide vehicle benefits that delivers real savings for both employers and employees.
As we approach October 2026, the businesses that act quickly to understand and implement salary sacrifice alternatives will be the ones that thrive. Those that wait until the last minute may find themselves scrambling to catch up with a market that has moved decisively towards a better solution.
The question isn’t whether ECOS will change – that’s already decided. The question is whether your business will seize the opportunity that this change presents.