The Government has announced a new temporary easement to mitigate the increasing Benefit-in-Kind tax liabilities of PHEV company cars due to new emission standards. Announced in the Budget
The Government has announced a new temporary easement to mitigate the increasing Benefit-in-Kind tax liabilities of PHEV company cars due to new emission standards.
Announced in the Budget and now set out in further detail, the new measure seeks to ensure consistency in the tax treatment of company cars across the UK by helping to offset the impact of updated emission standards on PHEVs.
The new measure relates to the European Union’s new Euro 6e-Bis regulation that came into force across the EU and in Northern Ireland as of January 2025 and kicks in for Britain from April 2026.
The stricter testing regime changes how vehicle CO2 ratings are calculated, with some PHEV models seeing their figures double, which would have potentially led to ‘cliff-edge’ tax rises for drivers’ BiK tax bills but could also have led to problems for salary sacrifice schemes, capital allowances and 100% corporation tax relief.
The UK government had said it would consult this year on the proposal to mandate the new regime for all new vehicle registrations in Britain from April 2026. On 21 July 2025, the Government published its intention to mitigate the impacts of the new emission standards through a written ministerial statement.
The written ministerial statement also committed to extend the easement retroactively in Northern Ireland to 1 January 2025, where the new emission standard already applies.
Where the standard applies, this change will significantly increase the BiK tax due on PHEV company cars, which is linked to CO2 emissions.
The new tax easement measure will impact an estimated 150,000 employees who have private use of a PHEV through their employer. The measure will prevent increased costs for these individuals.
In the ministerial statement this summer, the Government said it 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.
The easement will apply retrospectively from 1 January 2025 to 5 April 2028. Transitional arrangements will apply to certain PHEVs until 5 April 2031. Legislation will be introduced in Finance Bill 2025/26 to make the changes.
During the easement period, the CO2 emission figure for certain PHEVs will be deemed to be a nominal figure of 1g/km for the purposes of the Benefit-in-Kind charge rather than the CO2 figure on the registration document. This will have the effect of reducing the value of the Benefit-in-Kind charge that applies and will likely cut BiK rates for some models.
The Government said that employees affected by the retrospective element of the easement will be able to claim a repayment made on the system used to report the benefit through their employer.
The Treasury also said it’s expected that some employees provided with a company car by their employer will switch to PHEVs from petrol or diesel cars during the easement period.
There are a number of conditions that a vehicle must satisfy to be eligible for the easement are:
