HMRC’s upcoming car tax overhaul is set to shake up the way thousands of UK employees access vehicles through workplace schemes — and the impact could be severe.
From October 2026, changes to how Employee Car Ownership Schemes (ECOS) are taxed could see them treated like company cars, triggering higher Benefit-in-Kind charges and bigger bills for workers. Industry leaders warn this could lead to falling car sales, job losses across dealerships, and cost hikes for drivers already feeling the pinch.
Big Changes, Bigger Consequences
HMRC’s upcoming car tax overhaul is causing major ripples across the UK motor industry, with experts warning of job losses, falling car sales, and steep cost hikes for thousands of drivers. Set to take effect in October 2026, the changes target Employee Car Ownership Schemes (ECOS) — a popular alternative to traditional company car arrangements — and could see them pulled into Benefit-in-Kind (BIK) taxation rules if certain conditions are met.
While HMRC claims the move will raise £275 million in 2026–27, industry leaders say the policy could backfire, shrinking the market and putting thousands of dealership jobs at risk
What’s Changing?
AUnder the new rules, ECOS arrangements — which allow employees to own cars while still benefiting from employer support — will be treated more like company cars for tax purposes. That means higher BIK rates, more paperwork, and bigger bills for both employers and employees.
According to Motor Trader, the changes could lead to a dramatic drop in new car registrations, with estimates suggesting up to 150,000 fewer vehicles sold annually. That’s not just bad news for drivers — it’s a serious blow to dealerships, manufacturers, and the wider automotive supply chain.
Industry Sounds the Alarm
The National Franchised Dealers Association (NFDA) has been vocal in its criticism, arguing that HMRC’s revenue forecasts are “wildly optimistic.” Chief Executive Sue Robinson told MPs at a Nottingham dealership meeting: “The figures show a completely different picture to what the Treasury expects. This policy will shrink the market, not boost it”.
Accountancy firm RSM echoed those concerns, warning that the draft legislation could “stall UK car sales” and disproportionately affect workers who rely on ECOS for affordable vehicle access
Who’s Affected?
The overhaul will hit employees using ECOS, especially those driving double-cab pickups, which are often treated as light commercial vehicles. According to The Workers Union, from April 2025, many of these vehicles will be reclassified as cars under BIK rules — meaning higher tax bills for workers who use them for both business and personal use.
Tax experts at Tax Natives say the changes could cost some drivers hundreds of pounds more per year, depending on the vehicle type and usage. That’s on top of rising fuel prices, insurance premiums, and maintenance costs — making car ownership more expensive than ever for working professionals.
What HMRC Says
HMRC insists the changes are about fairness and closing loopholes. In a statement, the department said the reforms will “ensure that ECOS arrangements are taxed appropriately and consistently with other forms of employer-provided vehicles.”
They argue that the current system allows some employers to sidestep BIK rules, creating an uneven playing field. But critics say the crackdown is too broad and risks punishing legitimate schemes that help workers access reliable transport.
Final Thoughts
A This car tax shake-up is more than just a policy tweak — it’s a seismic shift that could reshape how thousands of UK workers access and afford their vehicles. With job losses looming and cost hikes on the horizon, the motor industry is bracing for impact.
If you’re part of an ECOS scheme or rely on a company car, now’s the time to review your options. Speak to your employer, check your tax position, and stay informed as the legislation develops. Because when it comes to car tax, what you don’t know could cost you — and your job — in the long run.
With HMRC’s car tax overhaul set to drive up costs for thousands of UK motorists, now might be the perfect time to reassess your vehicle situation.
If you’re thinking about selling your car, Jamjar.com can help. Simply enter your reg to get a free online quote, compare offers from trusted UK buyers, and sell your car quickly and hassle-free — before the new tax rules hit your wallet.
