How a New Emissions Test Just Tripled the Company Car Tax Bill on Britain’s Plug In Hybrids

A new emissions testing rule that quietly came into force on 1 April 2026 is going to land the average plug-in hybrid company car driver with a Benefit-in-Kind tax bill several times larger than the one they paid last year. The change is technical, sits buried inside the Euro 6e-bis emissions standard, and has nothing to do with the cars themselves. It is purely a recalibration of how PHEV carbon dioxide figures are calculated, and the consequences for fleet drivers, salary sacrifice customers, and anyone halfway through choosing a new company car are immediate.

The reason it has not caused more uproar is that the Treasury has bolted on a temporary easement to soften the blow. That easement runs only to April 2028. After that, a new BIK regime takes over that effectively scraps the tax advantage PHEVs have enjoyed since 2018. For drivers picking a company car this year, the choice between a plug-in hybrid, a full electric, and a petrol or diesel has just changed dramatically.

What Euro 6e-bis Actually Does

Every new car sold in the European single market and in Great Britain must be type approved against an emissions standard set by the European Commission and adopted into UK law. The current standard is Euro 6, and Euro 6e-bis is the third major refinement of it. From 1 April 2026, all new cars seeking type approval in Great Britain must meet the Euro 6e-bis standard.

The change matters because Euro 6e-bis significantly extends the test distance used to calculate a plug-in hybrid’s official carbon dioxide figure. The original WLTP test cycle, in place since 2017, measured PHEV emissions over 497 miles. The new Euro 6e-bis cycle stretches that to 1,367 miles. A plug-in hybrid driven over a longer distance inevitably depletes its battery and is forced to run on its petrol or diesel engine for more of the test. The official CO2 figure on the V5 logbook rises accordingly.

The size of the increase varies by model, but the pattern is consistent. A PHEV currently rated at 10g/km on the V5 will typically rise to between 30g/km and 40g/km under the new cycle. Larger SUV-class PHEVs that previously sat at around 30g/km can rise to as much as 90g/km. The car has not changed, the engine has not changed, the battery has not changed. The number used to tax it has roughly tripled.

The BIK Tax Consequence

Company car Benefit-in-Kind tax is based on three things: the list price of the car, the marginal income tax rate of the driver, and a percentage band derived from the car’s CO2 figure. For PHEVs, the band has historically been 8 to 17 per cent depending on the electric-only range, which compares favourably with petrol or diesel cars in the 30 to 37 per cent band.

A driver picking a £45,000 PHEV with a 10g/km CO2 figure and a 50-mile electric range would have been taxed at the 8 per cent band, producing a taxable benefit of £3,600. At a 40 per cent income tax rate, the annual BIK bill is £1,440. Under Euro 6e-bis, that same car’s CO2 figure could move to 30g/km, pushing it into the 12 per cent band. The taxable benefit becomes £5,400, and the BIK bill rises to £2,160. For a higher-emitting PHEV that moves from 30g/km to 90g/km, the band can shift from the high teens to over 20 per cent, lifting the annual BIK bill by £1,500 or more.

From 2028/29, the picture changes again. HMRC has confirmed that all PHEVs emitting between 1 and 50g/km of CO2 will fall into a single 18 per cent BIK band, regardless of electric range. The longer-range PHEVs that currently enjoy the 8 per cent band on the basis of a 40-mile electric range will see their tax band more than double on top of the Euro 6e-bis CO2 increase.

The Treasury’s Temporary Easement

The Treasury and Department for Transport recognised that letting PHEV BIK rates jump in a single year would have disruptive consequences for fleets and for the residual values of cars already on the road. The response is an easement that runs from 1 April 2026 to 5 April 2028. For PHEVs registered between 1 January 2025 and 5 April 2028, HMRC will assign a nominal CO2 figure of 1g/km for BIK calculation purposes, effectively freezing the existing low BIK rates for the next two tax years.

The easement applies for the entire term of the lease or ownership, provided the car was first registered before April 2028. A driver who orders a PHEV before April 2028 will continue to benefit from the lower BIK rate for as long as they keep that car, even if they hold it into the 2030s. A driver who orders the same PHEV after April 2028 will pay the new, higher rate based on the Euro 6e-bis CO2 figure.

For salary sacrifice customers, the easement is the difference between PHEVs remaining a viable option this tax year and being effectively priced out. HMRC has, however, signalled that PHEVs emitting more than 75g/km of CO2 may be removed from salary sacrifice eligibility entirely, on the basis that the Optional Remuneration Arrangement rules already restrict the tax advantage of sacrificing salary for high-emission vehicles.

The VED Knock-On

The Euro 6e-bis change also rolls through to Vehicle Excise Duty rates that apply in a car’s first year on the road. From 1 April 2025, the VED first-year rate for cars emitting between 1 and 50g/km of CO2 rose from £0 to £110. Cars emitting 51 to 75g/km rose from £20 to £130. Cars emitting 76 to 90g/km, the band that some larger PHEVs are now likely to fall into under Euro 6e-bis, rose from £130 to £270.

Standard VED from year two is now £200 per year for all cars apart from electric vehicles, which started paying the standard rate from April 2025. The expensive car supplement of £425 per year applies to any car with a list price above £40,000 for years two to six, regardless of fuel type. PHEVs with list prices above that threshold therefore now face roughly £625 of VED per year for the first five years of ownership after the first registration year, on top of the new higher first-year rate.

Why This Matters for Drivers

The change lands hardest on three groups. Company car drivers with a PHEV ordered before April 2026 keep their existing tax treatment for the life of the car. Company car drivers ordering a PHEV between 1 April 2026 and 5 April 2028 benefit from the Treasury easement and pay the same BIK rate they would have paid under the old cycle. Company car drivers ordering a PHEV after 5 April 2028, or any private buyer of a PHEV first registered after that date, faces the full impact of the Euro 6e-bis CO2 reclassification and the new 18 per cent flat band.

For drivers in that third group, the tax case for a PHEV over a full electric vehicle has effectively been removed. A new fully electric company car continues to be taxed at the 4 per cent band through 2026/27, rising to 5 per cent in 2027/28 and to 9 per cent by 2029/30. A new PHEV from April 2028 will be taxed at 18 per cent flat. On a £45,000 list price, the gap is £6,300 of taxable benefit per year. For a 40 per cent rate taxpayer, that is £2,520 a year in tax. Over a typical four-year lease, that is more than £10,000 of extra tax.

What Drivers Should Do Now

The practical advice depends on where a driver is in their lease cycle. Anyone holding a PHEV currently on a four-year lease should check the registration date on the V5. If the car was registered before 1 April 2026, the existing CO2 figure and BIK band continue to apply. If it was registered between 1 January 2025 and 5 April 2028, the easement applies and the nominal 1g/km figure is used for BIK. There is nothing the driver needs to do; HMRC and the employer’s payroll system handle it automatically.

Drivers approaching the end of a lease and considering a new PHEV should weigh the options carefully. If the order is placed before 5 April 2028, the easement applies and the existing BIK rate carries through the full lease. If the order is placed after that date, the new band structure applies and a fully electric car becomes the better tax-efficient choice for most drivers.

For salary sacrifice scheme members, the question is also whether the employer’s scheme rules will continue to support PHEVs at the higher CO2 figure. Many large schemes are reviewing their eligibility criteria and dropping PHEVs over 75g/km from the available list, anticipating both the tax change and HMRC’s signalled tightening of Optional Remuneration Arrangement rules. Drivers should check with their fleet manager or salary sacrifice provider before committing to a PHEV order this year.

Anyone choosing between a PHEV, a full EV, and a petrol or diesel for a private purchase should run the numbers on the full ownership cost rather than the BIK figure alone. The Euro 6e-bis change pushes up VED first-year rates for PHEVs but does not change the lower fuel running costs that PHEVs can deliver for drivers who regularly charge them. A private buyer doing high-electric-mile usage will still find a PHEV cheaper to run than a petrol or diesel, but the tax advantage at purchase has narrowed.

What Happens Next

The Treasury has not signalled any further easements beyond April 2028. The 18 per cent flat BIK band for PHEVs from 2028/29 is locked into the autumn 2024 Budget legislation and would require new legislation to change. The Euro 6e-bis CO2 figures will continue to apply to all new PHEVs registered from April 2026 onwards, with the easement only affecting the tax treatment, not the underlying figure on the V5.

For fleet decision-makers, the message from HMRC is that the tax system is being deliberately tilted towards full battery electric vehicles for the rest of this decade. For drivers, the practical effect is that a PHEV remains a sensible option for the next two tax years under the easement, but the assumption that a PHEV will always offer the lowest BIK band on a fleet list no longer holds. The car that looked like a tax bargain in 2024 is now, quietly, on a timer.

Sources:

• Lease Electric: Plug-in Hybrid Company Car Tax Changes for 2026
• Synergy Car Leasing: Euro 6e-bis PHEV Tax Changes UK 2026
• Fleetsauce: Euro 6e-bis Easement UK 2026 to 2028
• Ayvens: Euro 6e-bis emissions standards explained
• Fleet News: New BMW CO2 figures increase BIK for PHEVs