As the UK continues its push toward a greener transport future, 2025 marks a pivotal year for Plug-in Hybrid Electric Vehicles (PHEVs). With new emissions testing standards now underway, businesses running company car fleets need to keep up to date. The changes could significantly impact Benefit-in-Kind (BiK) tax rates and your overall fleet costs.
In this blog, we’ll talk you through what the new PHEV retesting involves, why the changes are happening, the current versus predicted emissions and BiK rates, and what this means for your fleet strategy.
Find out more about the current BiK rates for PHEVs, as well as other fuel types in our blog: Tax Changes from April 2025.
Why are Plug-in Hybrid Vehicles being retested?
PHEVs are often described as the best of both worlds: electric efficiency for short trips and petrol back-up for longer journeys. However, recent studies show that their real-world emissions often don’t match the optimistic figures from lab-based tests.
The International Council on Clean Transportation (ICCT) states that many PHEVs emit significantly more CO₂ in everyday use than their official ratings suggest. This discrepancy doesn’t align with the UK’s journey to net-zero and can be misleading for you as an employer using these figures for tax and cost planning.
To address this, the UK has adopted a new emissions testing standard – Euro 6e-bis – which came into effect on 1 January this year for all new PHEV models. Existing models must be retested by 31 December 2025 to remain compliant.
What does the new Plug-in Hybrid emissions testing involve?
The previous emissions testing standard, Euro 6e, evaluated PHEVs over a simulated distance of 800km (497 miles). This included driving with a fully charged battery and then with the battery only partially charged.
The new Euro 6e-bis standard rules are:
- Testing distance increased to 2,200km (1,367 miles).
- Adjustments made to reflect real-world usage patterns, where PHEVs spend less time in electric-only mode than previously thought.
This change aims to provide a more accurate picture of how PHEVs perform in everyday driving, especially for your company car drivers who may charge their vehicles more frequently due to travelling more business miles.
Currently, most PHEVs attract a BiK rate of 5%, 8%, or 12%. However, if the CO2 emissions for a PHEV model increase beyond 50g/km, as part of the revised test, drivers face a BiK rate of at least 15%.
To illustrate the impact, let’s look at the BMW X1 xDrive25e, a popular PHEV in UK fleets.
| Test Standard | CO₂ Emissions (g/km) | BiK Rate |
|---|---|---|
|
Euro 6e |
45g/km |
8% |
|
Euro 6e-bis |
96g/km |
24% |
That’s a tripling of the BiK rate, which could mean hundreds of pounds more in monthly tax for your company car drivers, and it will also impact the amount you pay in Class 1A National Insurance Contributions (NICs).
Current PHEV BiK rates
BiK rates for PHEVs are currently based on a sliding scale tied to CO₂ emissions and electric-only range. However, as testing is already underway, we anticipate these figures to change across the board by the end of this year.
| CO₂ Emissions (g/km) | Electric Range (miles) | BiK Rate 2024/25 |
|---|---|---|
|
0-50 |
<130 |
2% |
|
0-50 |
70-129 |
5% |
|
0-50 |
40-69 |
8% |
|
0-50 |
30-39 |
12% |
|
0-50 |
<30 |
14% |
|
51-54 |
Any |
15% |
Since PHEVs were introduced to the market, these rates have made PHEVs highly attractive for businesses, but that’s changing fast. As the results from the retesting are released, it’s expected that there will be a decline in PHEVs, particularly those used as company cars delivered via a salary sacrifice arrangement, as they’ll no longer benefit from the BiK tax advantages.
Predicted PHEV BiK rates post-retesting
With the new Euro 6e-bis tests, many PHEVs are expected to fall into higher CO₂ brackets. Here’s what that could look like:
| CO₂ Emissions (g/km) | Electric Range (miles) | Predicted BiK Rate |
|---|---|---|
|
55-69 |
16 |
18% |
|
70-94 |
19 |
23% |
|
95-110 |
24 |
26% |
|
111+ |
|
27%+ |
These figures are comparable to efficient petrol or diesel vehicles, meaning PHEVs would sit alongside these fuel types in terms of BiK tax, removing the advantages they’ve had over traditional fuels to date.
What does the Plug-in Hybrid company car tax increase mean for your fleet?
Higher Contributions for Employers
In line with your drivers’ increase in BiK rate, you will also see an increase in the Class 1A NICs you pay when providing your employees with the car benefit.
Higher Costs for Drivers
Company car drivers could see their monthly BiK tax bills double or triple, depending on the model. This could impact employee satisfaction and uptake of PHEVs.
Shift Toward BEVs
Full Electric Vehicles (EVs), which have a 3% BiK rate as of April 2025, may become more attractive. With the UK’s charging infrastructure improving, EVs are increasingly viable for business use.
Compliance Deadlines
If your fleet includes PHEVs purchased before 2025, they must be retested by 31 December 2025 to remain compliant. This could involve administrative overhead and potential downtime for your fleet.
How to tackle the Plug-in Hybrid company car tax increase?
Offer a blended car benefit solution that includes multiple ways to deliver an employee benefit, so you can meet the needs of the business, as well as the varying needs of your company car driver population.
Here at Car Benefit Solutions (CBS) we offer Employee Car Ownership Schemes (ECOS), Salary Sacrifice Cars, Business Car Leasing, and you can add a car allowance option alongside any of our other schemes. This versatile and flexible approach creates a comprehensive package that has a solution for every business, every driver and every need.
Read our blog: The Advantages of a Blended Car Solution to discover how you can combine the schemes to meet your business needs.
We’re here to help you navigate the transition to electric, through the PHEV retesting and beyond. We’ll continue to monitor and stay informed about further changes, including the upcoming Euro 6e-bis-FCM standard in 2027, which will test vehicles over 4,260km and could push emissions even higher. If required, we’ll offer support to our customers on these changes too.
A turning point for PHEVs
The 2025 retesting of PHEVs in the UK is more than a technical update – it’s a strategic inflection point for fleet managers and businesses. While PHEVs have played a valuable role in the transition to low-emission transport, their future in company fleets is now under scrutiny.
With BiK rates rising and real-world emissions under the spotlight, businesses must adapt quickly. Whether that means shifting to BEVs, renegotiating company car terms, or revising fleet policies, the time to act is now.
If you’d like more information on how we can help manage your fleet, get in touch today.