The UK government has recently unveiled proposals to introduce significant changes to car taxation, set to take effect in October 2026. These proposed changes will bring employee car ownership schemes (ECOS) under the umbrella of company car taxation, potentially impacting thousands of employees and businesses across the country.
According to information reported by GB News, concerns have been raised within the automotive sector regarding how these tax adjustments could affect recruitment efforts, car sales, and the broader transition to electric vehicles. This article will explore the key details surrounding the car tax changes and the possible consequences for the industry moving forward.
The Proposed Car Taxation Changes: What You Need to Know
The draft legislation, released by HM Revenue & Customs (HMRC) in July 2025, would impose Benefit-in-Kind (BIK) tax on vehicles provided to employees under ECOS. These schemes, which offer employees access to discounted vehicles, have been a staple of recruitment strategies in the automotive industry for years. However, under the new rules, all cars provided through these schemes would be subject to the same car tax rules as traditional company cars.
The government estimates that the new car tax measures will raise an additional £275 million in 2026-27. While this might seem like a promising source of revenue, critics argue that this could have unintended consequences. The changes are expected to affect over 76,000 workers across more than 1,900 businesses that currently operate employee car ownership programmes. These businesses, particularly in automotive manufacturing and retail, rely on these schemes to attract and retain talent.
Concerns from the Automotive Industry
The National Franchised Dealers Association (NFDA) and major dealership groups such as Vertu Motors have voiced their concerns over the impact of these changes on employee recruitment. Offering discounted cars through ECOS is a common strategy used by automotive businesses to attract and retain workers, particularly in an industry that is facing a skills shortage.
Sue Robinson, CEO of the NFDA, warned that the car tax changes could diminish the attractiveness of jobs in the sector. She argued that the shift could slow the transition to electric vehicles (EVs) by making it harder for employees to afford eco-friendly options. “We are urging the Government to re-think its proposal and support the motor industry and its workforce at this critical time by maintaining ECOS as a valued and effective employee benefit,” Ms Robinson added.
Additionally, Robert Forrester, CEO of Vertu Motors, has pointed out that the car tax changes could backfire financially. If employees shift from ECOS to traditional company car schemes, their tax contributions could decrease significantly. For instance, at Vertu Motors, shifting employees to conventional company cars could reduce annual tax contributions by millions of pounds. His calculations indicate that the contribution per employee would drop from £32,500 to just £4,505, leading to a £7 million loss in tax revenue for the government from his company alone. “The assumption that this change will have no significant macroeconomic impact is, in our view, incorrect. The proposal risks reducing vehicle volumes, disrupting pay structures, and damaging both the new and used car markets,” he said.
The Future of Car Taxation and its Impact on the Industry
While HMRC’s calculations predict significant car tax revenue growth in the first year, industry leaders remain sceptical about the long-term effects. The new tax rules could negatively impact not only recruitment and staff retention but also vehicle sales, particularly in the growing EV sector. As car manufacturers continue to push for greener alternatives, the increased car tax burden could slow down the adoption of EVs, ultimately undermining the UK’s green goals.
The NFDA has formally submitted concerns to HMRC and plans to meet with government officials in the coming months to discuss the proposals further. They are urging the government to reconsider the impact these changes could have on the automotive industry and the UK’s efforts to reduce carbon emissions. Industry experts are hopeful that the government will take their concerns into account before finalising the legislation.
