- Plug-in hybrid tax rules - changes you need to know
- Stringent new efficiency tests for PHEVs
- Impacts company car drivers and employers
- Key dates for switchover explained
The tax rules surrounding plug-in hybrids are changing - and here’s everything company car drivers and businesses need to know.
For many motorists, plug-in hybrids (PHEVs) can bridge the gap between traditionally fuelled cars and EVs.
They’ve also historically been suited to high-mileage or more rural drivers who perhaps aren’t ready to go fully electric but still want to save money when it comes to fuel costs and company car tax rates.
But from 2026 on, the road ahead for PHEVs looks slightly different.
Here we round up the key things you need to know, whether you’re leasing one or offering them to employees as a company or as part of a salary sacrifice scheme.
Plug-in hybrid rule changes: it all comes down to stringent new efficiency tests
At the centre of the plug-in hybrid shifting sand is something called ‘Euro 6e-bis’.
It’s an updated European Union vehicle emissions standard that aims to nail-down much more accurate and realistic figures when it comes to CO2 emissions and efficiency.
Instead of the old way of testing, which involved a simulated road test covering around 497 miles, the figure has tripled to around 1,367 miles, while also trying to factor-in more ‘real world’ driving.
Why does Euro 6e-bis matter?
Well, the Benefit in Kind (BiK) tax you pay for driving a PHEV as a company car depends on its CO2 emissions and its electric range.
And the newer, more stringent efficiency test will result in higher official CO2 figures and therefore push many PHEVs into a higher BiK bracket.
That, in turn, will result in steeper costs.
The new, higher Euro 6e-bis CO2 figures came into play in April 2026.
And there’s more.
By 2027, another, even stricter emissions test will be ushered-in which sees the testing distance increased to around 2,600 miles and could result in further increases to official CO2 figures - and therefore further BiK increases.
New plug-in hybrid rules: What it means for company car drivers
Benefit in Kind tax is the big consideration here.
If, for example, a PHEV’s official CO2 emissions jump from 30 g/km to 60 g/km because of the new test, a motorist’s monthly BiK bill (as a 40% taxpayer) could double.
New plug-in hybrid rules: What if means for businesses
The new efficiency test for PHEVs might impact businesses as much as it influences company car drivers.
The higher taxable value of the car will lead to an increase in an employer’s National Insurance Contributions (NICs).
Increased CO2 emissions for PHEVs will also have a knock-on effect for how much firms can claim back from the taxman via Capital Allowances and the cost of rentals.
Fleet managers will also be paying close attention.
Some company car policies or salary sacrifice schemes set a maximum CO2 limit for the cars made available of around 50g/km to 75g/km.
If the new test shunts some vehicles beyond that threshold, then it’ll trigger a review of fleet policies while requiring a new total cost of ownership assessment.
Plug-in hybrid rules: Reasons to be cheerful
It’s not all bad news - and there’s plenty of wiggle room before the new rules really kick in.
Responding to the emissions test changes, the UK government announced a temporary easement of the rules to stop PHEVs disappearing off the edge of a cliff.
In the UK, from 1 January 2025 to 5 April 2028, the temporary tax easement allows qualifying Plug-in Hybrid Electric Vehicles (PHEVs) to use a nominal 1g/km emission figure for company car tax BiK calculations, therefore locking in the potential savings.
Those rules apply so long as the:
- vehicle was first registered on or after 1 January 2025
- vehicle’s CO2 emissions figure is 51 or more
- vehicle was registered under any emission standard other than Euro 6d-ISC-FCM or Euro 6e
- car’s electric range figure is 1 or more
And there’s more good news.
That transitional protection can extend to 5 April 2031 for qualifying vehicles already registered in time.
The rules state: “This change will be effective from 1 January 2025 to 5 April 2028. Transitional arrangements will apply until the earlier of either:
- a change or renewal of the arrangement
- 5 April 2031
It prevents some PHEVs from suddenly becoming much more expensive for company-car tax when you’re mid-way through a leasing contract.
New plug-in hybrid rules UK: The bottom line
We turned to fleet leasing expert Jon Burdekin, Managing Director Jon Burdekin Fleet Consulting and a close ally of Select Car Leasing, for the lowdown.
Jon says: “PHEVs are wonderful technology and will continue to play an important part in the wider transition to electric, for employers and fleets, particularly as a stepping stone to taking a full EV in due course.
“Employers and employees should beware of the hike in Company Car tax for PHEVs in - they will effectively be taxed as petrol cars - and this will lead to increases in company car tax (for the employee) and NI for the employer (they pay NI on any BiK the employee pays).
“With this change in tax strategy on PHEVs, fleet managers should be looking to try to get as many of the drivers as possible into fully electric vehicles - to minimise tax on all sides. If a driver does need to go into a PHEV, they need to be educated how to drive it properly in order to maximise the potential savings in running costs. It should be charged regularly, and driven on zero emissions wherever possible - rather than just driven and never charged, as many PHEV drivers do.
“So, PHEVs can still be part of a fleet’s wider strategy to adopt electrified vehicles, but the tax advantages will be less obvious.
“Driver education is crucial for those taking PHEVs. A well-chosen PHEV can still work, but the margin for error is shrinking.
“In salary sacrifice schemes, the tax increases will simply erode the tax savings and I can see them falling off such schemes organically in the future.”
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