With the Treasury’s recent announcement that Employee Car Ownership Schemes (ECOS) will face significant tax changes from October 2026, businesses across the UK are assessing what this means for their fleet and employee benefit packages.
But here’s the positive: while ECOS as we know it is coming to an end, a better alternative is already available — salary sacrifice car schemes. This government-supported solution offers genuine tax advantages, particularly for electric vehicles (EVs), and presents a real opportunity for employers, employees, and even retailers.
What is ECOS and Why is it Changing?
Employee Car Ownership Schemes (ECOS) allowed employers to provide vehicles to staff in a way that reduced or avoided Benefit-in-Kind (BiK) tax charges. Under these arrangements, employees technically “owned” their cars but with restrictions such as:
Employer-controlled registration
Limited private use
Predetermined buyback values
The government has deemed ECOS a “contrived” arrangement designed to sidestep tax liabilities. From 6 October 2026, vehicles provided under ECOS will be taxed in the same way as traditional company cars.
The Numbers Behind the Change
Around 76,000 employees across 1,900 UK companies will be affected.
The Treasury expects to raise £275 million in the first year alone.
The most impacted sectors include motor manufacturing and franchised dealerships.
Options for Businesses After October 2026
If your business currently operates ECOS, you’ll need to decide on a replacement before the deadline. The main options are:
Continue with ECOS
Employees will now face standard BiK charges.
Administration and compliance become more complex.
Switch to a traditional company car scheme
- Tax implications remain but processes are straightforward.
Adopt Salary Sacrifice (recommended)
Offers tax and National Insurance savings.
Particularly beneficial when applied to EVs and plug-in hybrids.
How Salary Sacrifice Car Schemes Work
A salary sacrifice scheme allows employees to give up part of their gross salary in exchange for a vehicle. Because this is deducted before tax and National Insurance are calculated:
Employees save on Income Tax and National Insurance.
Employers reduce their National Insurance contributions.
EV drivers benefit from BiK rates as low as 3% until 2025/26, rising only gradually until 2029/30.
Salary Sacrifice vs ECOS: A Practical Comparison
| Criteria | ECOS (post-2026) | Salary Sacrifice |
|---|---|---|
| Taxation | Full BiK charges apply | Reduced BiK, major savings on EVs |
| Employer Risk | Residual value + admin burdens | No residual value risk |
| HMRC Approval | Being phased out | Fully compliant and government-backed |
| Employee Savings | Uncertain | Clear and predictable |
| Suitability | Outdated | Future-proof and flexible |
Why Retailers and Leasing Providers Should Take Notice
For franchised retailers, the changes to ECOS represent a huge opportunity. Currently, fewer than 5% of retailers offer salary sacrifice solutions — leaving significant growth potential.
By offering salary sacrifice leasing, retailers and providers can:
Win new business from companies moving away from ECOS.
Increase vehicle sales values (higher-spec cars become affordable through tax savings).
Secure long-term customer relationships with bundled services (insurance, maintenance, tyres).
Drive EV adoption while boosting aftersales retention.
The Electric Vehicle Advantage
The timing aligns perfectly with the UK’s push toward net zero. Salary sacrifice enhances the appeal of EVs by combining government-backed BiK incentives with employer/employee savings.
Pure Electric Vehicles (0g/km CO₂): 3% BiK until 2025/26, then small annual increases.
Plug-in Hybrids (0–50g/km CO₂): 6% BiK.
Petrol/Diesel Vehicles: 25–37% BiK, making them far less attractive.
Making the Transition: An Action Plan
For Employers
Audit current ECOS agreements and identify at-risk employees.
Model cost comparisons between ECOS, company cars, and salary sacrifice.
Engage early with providers like Cocoon Vehicles — demand will surge as 2026 nears.
Communicate clearly with staff about their options.
For Retailers & Fleet Providers
Develop salary sacrifice expertise as a key service.
Promote EV leasing using the strong BiK incentives.
Partner with leasing specialists (such as Cocoon Vehicles) to deliver full-service packages.
Frequently Asked Questions (FAQs)
What happens to my current ECOS arrangement?
From October 2026, ECOS cars will be taxed like company cars, reducing or eliminating the previous savings.
Why is salary sacrifice better for EVs?
EVs attract a BiK rate of just 3%, compared to 25–37% for petrol/diesel, making them much cheaper through salary sacrifice.
Can all employees join a salary sacrifice scheme?
Most employees can, but eligibility depends on salary thresholds (to ensure pay doesn’t fall below minimum wage).
What’s included in a Cocoon Vehicles salary sacrifice lease?
Typically, the monthly package covers the vehicle, servicing, tyres, road tax, and breakdown cover — making it a simple, predictable benefit.
Can I take a plug-in hybrid car on Salary Sacrifice?
Yes, it is possible to have a plug-in hybrid car on a Salary Sacrifice scheme, but the tax advantages are not as good as those with Electric Vehicles.
Can I take a short-term car lease or subscription on a Salary Sacrifice?
Yes, we can use the majority of our short-term car leases or car subscription vehicles on a salary sacrifice scheme, which is ideal for those who don’t want to commit to the same vehicle for 3 or 4 years.
Get Started with a Salary Sacrifice
The upcoming ECOS tax changes aren’t the end of the road – they’re the start of smarter, greener way for businesses to provide vehicles.
Salary Sacrifice car leasing is HMRC-approved, cost-effective and future-proof, especially when applied to electric vehicles. Employers can save money, employees enjoy lower running costs and retailers gain new opportunities.
At Cocoon Vehicles, we specialise in flexible car leasing and salary sacrifice solutions to help businesses transition seamlessly before 2026. Contact us on 01332 290173 or use the ENQUIRY FORM below to drop us a line to see how we can help you.
Is Cocoon Vehicles the best company for Salary Sacrifice?
Whilst we offer a much wider range than most of the other salary sacrifice providers, where we excel is that we can offer our car subscriptions and short-term car leases as part of a salary sacrifice offering for your employees. This enables your staff to change their vehicles on a more regular basis, ideal for those who don’t really want to commit to the same car for 3 or 4 years.
We also offer a range of plug-in hybrid cars available on salary sacrifice, great for those that just can’t make the switch yet to an electric car full-time. Whilst the tax advantages aren’t as strong as EV’s, you still save money and are also ideal for those on salary’s in excess of £100k.
There are some strong salary sacrifice competitors in the marketplace, but we’d ask to give us a bell to discuss any requirements.
And just to clear things up, if you did want to offer vehicles to your team over 3 or 4 years, we can still help.
