Company Car Drivers Could Lose a Tax Break as DfT Retests PHEV Emissions

• A stricter emissions retest could push some plug-in hybrids over the 75g/km CO2 limit that qualifies a car for salary sacrifice, stripping drivers of the scheme’s tax and National Insurance saving.
• The Department for Transport plans to apply the tougher Euro 6e-bis style test to new registrations from 2026, and HM Treasury has confirmed there will be no change to cars already on the road.
• Some PHEVs could see their official CO2 figure more than double or triple, which could also push a car into a higher company car tax band even where salary sacrifice is not involved.

The Tax Break Thousands of Drivers Ordered a Car For Could Disappear Before It Arrives

Company car drivers who ordered a plug-in hybrid through a salary sacrifice scheme this year are being warned they could lose the tax advantage they signed up for, through no fault of their own, as the official emissions figure attached to their car is about to change. Salary sacrifice lets an employee lease a car through their employer and pay for it from pre-tax salary, provided the vehicle emits 75g/km of CO2 or less. That threshold has made a wide range of plug-in hybrids attractive, as their official figures have typically sat well under it.

The problem is that those official figures are about to be recalculated under a stricter test, and for some PHEVs the new number will not just creep over the line. It could jump past it by a wide margin.

Why the Numbers Are Changing

The EU introduced a tougher testing standard for plug-in hybrids, known as Euro 6e-bis, which has applied to newly launched PHEVs from January 2025 onward and to every PHEV model on sale from the end of that year. The Department for Transport is preparing to consult on mandating the same standard in Great Britain, with plans for it to apply to new car and van registrations from 2026, replacing the current Euro 6d standard.

The DfT has published indicative examples of what that means in practice. A PHEV currently showing 10g/km of CO2 with an electric-only range of 50 miles could see that figure rise to 30g/km once retested. A similar car with a 75-mile electric range could move from 10g/km to 40g/km. A PHEV showing 30g/km with a 25-mile range could climb to 60g/km, and one showing 30g/km with a 50-mile range could rise as high as 90g/km. Every one of those examples would clear the 75g/km salary sacrifice threshold, and the last two comfortably exceed it.

Who Gets Hit and When

HM Treasury has confirmed there will be no retrospective change to CO2 figures for cars already registered, so a PHEV a driver is currently running through salary sacrifice keeps its existing figure and existing tax treatment. The risk sits with drivers who have ordered a car but not yet taken delivery, and with anyone planning to order a PHEV through salary sacrifice in the coming months. Subject to the DfT’s consultation, any change would apply to vehicles registered from 1 January 2026, which means a car ordered on the strength of one CO2 figure could arrive on the road carrying a very different one.

Harvey Perkins, a tax specialist at HRUX, told a webinar organised by the Association of Fleet Professionals that the industry has faced a similar disruption before, when testing moved from the old NEDC standard to WLTP. “There was quite a lot of disruption in the industry, as people need to know what the CO2 numbers are, and at this point in time, it’s not very clear,” he said. He set out exactly where the financial cliff edges sit: cross 50g/km and a driver moves up the company car tax table, paying more benefit-in-kind tax on the same car. Cross 75g/km and salary sacrifice stops applying altogether. The driver can keep the car, Perkins said, but loses the National Insurance and income tax saving that made the scheme worthwhile in the first place.

What the Saving Is Actually Worth

Salary sacrifice deductions are taken from gross pay before income tax and National Insurance, which is why the scheme has grown so quickly among employers offering electrified company cars. Providers report average driver savings of between £5,000 and £15,000 a year across their 2026 customer base, depending on salary, tax band and the car chosen. A PHEV that loses eligibility does not just lose a discount. It loses the entire structural advantage of paying for the car before tax, which for a higher-rate taxpayer can be the difference between a lease being affordable and not.

What to Do if You Have a PHEV on Order

Anyone with a plug-in hybrid on order through a salary sacrifice scheme should ask their leasing provider or fleet manager for the car’s electric-only range in miles and its current official CO2 figure, then check that combination against the DfT’s published examples. A short electric range paired with even a modest CO2 figure is the profile most likely to be pushed over the threshold once retested. Employers running salary sacrifice schemes should be pressing their leasing partners now for confirmation of which ordered models are at risk, rather than waiting for a certificate of conformity to arrive with an unexpected number on it.

Drivers who have not yet ordered a car but are deciding between a PHEV and a fully electric model should treat the coming retest as a reason to look more closely at a pure EV, where there is no equivalent cliff edge, as a zero-emission car’s CO2 figure cannot be revised upward by a change in testing method. The DfT’s consultation, expected later this year, will set out the final detail, and anyone with a car on order should watch for its outcome rather than assuming the figure quoted at the point of order is the one that will apply when the car is registered.

Drivers already comparing an electric company car as an alternative can check how the benefit-in-kind rate for electric cars is set to change by 2029, and anyone unsure how a change in CO2 banding affects their tax bill can see what higher-emission new cars now cost their drivers in year-one tax.

The Precedent From the Last Testing Change

This would not be the first time a change in how cars are tested has caught drivers out financially. When the UK moved from the older NEDC testing regime to the more realistic WLTP standard, official CO2 figures for a wide range of cars rose overnight, in some cases pushing vehicles into a higher vehicle excise duty band or a higher company car tax bracket without any physical change to the car itself. Fleet tax specialists say the disruption caused then was significant enough that some employers had to rework salary sacrifice agreements mid-contract. The concern this time is narrower, as it applies specifically to plug-in hybrids rather than the whole market, but the financial mechanism is identical: a car does not change, the number attached to it does, and the driver is the one who feels the difference on their payslip.

What Employers Running Salary Sacrifice Schemes Should Be Doing Now

Fleet managers and HR teams administering salary sacrifice schemes are being encouraged to audit every PHEV currently on order rather than waiting for delivery paperwork to reveal a problem. That means contacting the leasing provider for each ordered vehicle, requesting the manufacturer’s own projection of how the retest is likely to affect that specific model’s CO2 figure, and flagging any driver whose car sits close to either the 50g/km or 75g/km thresholds under the DfT’s indicative examples. Some leasing companies are already offering to let affected drivers switch an order to a fully electric alternative without penalty, given the scale of the potential tax change, and employers who raise the issue with their provider now are in a stronger position to negotiate that kind of flexibility than one who waits until a driver’s certificate of conformity arrives with a number nobody expected.

Sources:

• Fleet News: Salary sacrifice threshold warning from emissions testing change
• The Electric Car Scheme: Complete Guide to EV Salary Sacrifice for UK Employers 2026
• Electric Car Guide: Spring Statement 2026 and EV salary sacrifice