HMRC to slap drivers with new tax bill after law change

A huge change to the law set to take effect from 2026 will see drivers stung with new tax bills if they have a company car.

As announced in the Autumn Budget last year, HMRC is set to take aim at Employee Car Ownership Schemes (ECOS) which currently give drivers who get their car through work a handy tax break.

Normally, a company car is liable to tax, but under ECOS, the legal ownership of the car is transferred to the employee, meaning they get the benefit of the car but don’t owe company car tax to HMRC on it. Instead, employees pay for the car from their wages each month, but crucially aren’t liable for company car tax.

HMRC says the change is likely to mean extra tax to pay for 76,000 workers at 1,900 firms, raising an additional £220m for the Treasury in the first year, 2026-27.

The government says in its draft legislation, published on July 21, 2025: “As announced at Autumn Budget 2024, the government is amending the benefit in kind rules so that vehicles provided through ECOS arrangements will be deemed as taxable benefits when made available on restricted terms, outlined in the legislation.

“Vehicles provided through these arrangements will be deemed as taxable benefits when made available on restricted terms, outlined in the legislation.

“Private use of a company car is a valuable benefit, and it is right the appropriate tax is paid on it. This measure will ensure fairness with other taxpayers, reduce distortions in the tax system, and it reinforces the emissions-based company car tax regime which incentivises the take-up of zero emission vehicles.

“This measure will impact an estimated 76,000 individuals who currently receive cars through ECOS as they will become liable for the income tax associated with the benefit.

“These individuals may now need to pay the appropriate benefit in kind charge or seek an alternative arrangement with their employer.

“Impacted employees may choose to retain the current vehicle through a normal car scheme, choose a lower emitting (lower tax) vehicle or choose to go without a company car altogether.”