Legislation to reduce impact of new emissions test on PHEV company car tax

The Government will introduce legislation to reduce the impact of a hike in company car tax from a new, stricter emissions test for plug-in hybrid electric vehicles (PHEVs).

The Treasury has confirmed that the Department for Transport (DfT) will launch a consultation in “due course” on proposals to mandate the Euro 6e-bis emission standard in Great Britain, which would apply to all new car and van registrations from April 2026.

The current emission standard for cars and vans in Great Britain is Euro 6d, while in Northern Ireland – like the rest of the EU – the Euro 6e-bis emission standard has applied since January 2025.

In a statement to Parliament, Treasury minister James Murray said: “The Government recognises that while it is right that higher emitting vehicles pay more tax, company cars continue to play an important role supporting our transition towards zero emission vehicles and the decarbonisation of transport.

“Subject to consultation outcome, the Government intends to legislate for an easement that will apply UK-wide between April 2026 and April 2028 to help mitigate the benefit-in-kind tax impact.

“In Northern Ireland, the easement will also apply retrospectively to January 2025 in order to ensure consistency across the UK.”

Paul Hollick, chair at the Association of Fleet Professionals (AFP), welcomed the news. “We’re pleased that the Government is considering the impact of new emissions testing on plug-in hybrid company cars,” he said. 

“Revisions to the benefit in kind tax tables through to the end of the decade made in last year’s Budget already mean these vehicles –  which are potentially an important part of the fleet mix - are becoming much less attractive to businesses and their drivers, and the new Euro 6e-bis standard could’ve made this situation much worse.

“Our view is that it would be unfair if tax on company cars was increased beyond the levels announced in the Budget.

“We hope the planned easement makes this possible and also that the situation is resolved as quickly as possible – many fleets and drivers have understandably been holding back from ordering PHEVs until they know what they will be paying.

“Finally, given that the new legislation will take effect in April, 2026, which is not necessarily that far away in terms of placing car orders, a speedy resolution would make sense.”

The DfT has previously provided indicative examples of the potential CO₂ increases from Euro 6e-bis compared to Euro 6d.

For instance, a PHEV with a current CO₂ figure of 10g/km and equivalent all electric range of 80km (50 miles) could increase to 30g/km. 

It also suggests that a PHEV with a current CO₂ figure of 10g/km and an equivalent all electric range of 120km (75 miles) could increase to 40g/km, and a PHEV with a current CO₂ figure of 30g/km and equivalent all electric range of 40km (25 miles) could increase to 60g/km. 

Its final example was a PHEV with a current CO₂ figure of 30g/km and equivalent all-electric range of 80km (50 miles), which it says could increase to 90g/km. 

Currently attracting a BIK rate of 9% in 2025/26, the company car in this example would result in a new, much higher BIK rate of 24%, if registered after the new emissions test is adopted in Great Britain from April 2026 without any Government intervention. 

Changes to company car tax bands, announced in last year's Budget, will see drivers using PHEVs as company cars face a hike in their BIK from 2028/29 of up to 13 percentage points, with zero-emission mileage being ditched as a differentiator.