The UK Government has announced it plans to introduce new legislation aimed at mitigating the impact of stricter emissions testing on company car tax for Plug-in Hybrid Electric Vehicles (PHEVs) introduced in January 2025. For fleet managers, this development is both a challenge and an opportunity to reassess vehicle strategies, salary sacrifice schemes, and Employee Car Ownership Schemes (ECOS).
This latest development for PHEVs is an apparent contradiction to creating a level playing field for all company car drivers (a claim made in the draft ECOS legislation), as those in PHEVs look set to be protected whether they plug their car in or not.
In this blog, we’ll break down the key changes, explore their implications for fleet operations, and offer practical guidance on how to adapt.
What’s changing for plug-in hybrid company cars?
The Euro 6e-bis emissions standard
From April 2026, the UK is set adopt the Euro 6e-bis emissions standard, already in place in Northern Ireland and the EU. In preparation for this, re-testing of PHEV emissions began in January 2025 and all must be complete by the end of the year.
The new testing is designed to better reflect real-world CO₂ emissions from PHEVs, which have historically been underestimated due to optimistic assumptions about electric-only driving.
Under Euro 6e-bis, CO₂ figures for PHEVs could triple, depending on electric range and usage patterns. Currently, most PHEVs attract a Benefit-in-Kind (BiK) rate of 5%, 8%, or 12%. However, if the CO₂ emissions for a PHEV model increase to 51g/km or above as part of the revised test, drivers face a BiK rate of at least 15%.
Find out more information on the current plug-in hybrid BiK rates in our blog: Tax Changes from April 2025.
Temporary tax relief
Recognising the potential disruption, the Government plans to introduce a temporary easement from April 2026 to April 2028, softening the BiK impact for affected vehicles.
Company car tax impact on fleet vehicle selection
Attractiveness of PHEVs
PHEVs have long been a popular choice for fleets, offering a balance between low emissions and long-distance capability. However, the new emissions testing and tax changes are making them less financially attractive:
- BiK rates for PHEVs as it stands are set to increase significantly. From 2028/29, all PHEVs emitting 1-50g/km CO₂ will fall into an 18% BiK band, regardless of electric range.
- VED (Vehicle Excise Duty) for PHEVs has also risen. From April this year, they’re now taxed at the same rate as petrol and diesel cars, losing their previous exemptions.
However, with the consultation now taking place over the PHEV BiK rates, will this have any impact of their attractiveness as company cars?
Shift toward fully Electric Vehicles
With Electric Vehicles (EVs) still enjoying lower BiK rates (starting at 3% in 2025/26 and rising gradually to 9% by 2029/30) and favourable VED treatment, many fleets are expected to accelerate their transition to full electric.
If you’re a fleet manager, you should consider:
- Updating vehicle choice lists to prioritise EVs.
- Reviewing charging infrastructure to support increased EV adoption.
- Engaging with manufacturers to understand model availability and lead times.
Discover how CBS can help you to increase your EV adoption in our article ‘The advantages of a blended car benefit solution’.
EV salary sacrifice remains tax-efficient
Are salary sacrifice schemes still a smart move? Yes, despite rising BiK rates, EV salary sacrifice schemes remain highly cost-effective. Employees benefit from:
– Affordable brand-new EVs
Drive the newest plug-in hybrid and full electric vehicles, just fuel or charge and go.
– Savings on National Insurance Contributions (NICs) and income tax
Benefit from savings because the car is paid for via salary sacrifice before tax and NICs are deducted.
– Low BiK rates
Fixed at 3% for fully Electric Vehicles (EVs) until April 2026, before incrementally rising to 7% in 2028.
As an employers, you can also:
– Generate savings
Save on NICs, especially valuable given the NICs rate increase from 13.8% to 15% in April 2025.
– Improve employee retention and satisfaction
At no additional cost to your business, recruit and retain the best talent with a go-green car benefit.
Discover more ways to reduce company car costs in our article ‘How to reduce costs on your business fleet in 2025’.
PHEVs and salary sacrifice
The new emissions testing could push some PHEVs above the 75g/km CO₂ threshold, making them ineligible for salary sacrifice schemes. However, dependent on the outcome of the consultation, and if the increases are eased over the next couple of years, some PHEVs might still be favourable for salary sacrifice schemes.
Some steps you could consider for preparation are:
- Audit current PHEV models for compliance.
- Communicate potential changes clearly to employees and continue to keep them updated.
- Consider which PHEVs you’d like to include in your salary sacrifice offerings.
Employee Car Ownership Schemes (ECOS): taxable from 2026
The Government is also tightening rules around ECOS. From October 2026, vehicles provided under ECOS will be treated as taxable benefits, aligning them with standard company car tax rules.
According to the draft legislation, which sets out that qualifying arrangements, means the transfer of the ownership of the vehicle to the employee where one or more of the following criteria are met will become a taxable benefit:
- where there are restrictions on the employee’s private use of the vehicle
- where the employee is not the registered keeper of the vehicles
- where, as part of the arrangement, there is a set buyback or onward sale arrangement
In terms of PHEVs on an ECOS, there would be a similar impact as a salary sacrifice scheme, since both benefit delivery methods are taxable based on CO2 emissions.
We’ll have to wait for the outcome of the PHEV consultation and any further updates to the draft ECOS legislation before we can realise the full impact.
Learn how we’re evolving to ensure continued value and compliance for your car benefit scheme in our statement from the MD: Important Update – Employee Car Ownership Schemes (ECOS).
Our recommendations for fleet managers
We’re here to help you navigate the transition to electric, through the PHEV retesting, draft ECOS legislation and beyond. While we wait for further updates, you could consider:
- Reassessing fleet composition
Prioritise the right cars for your fleet, especially for new orders post-2025. Consider total cost of ownership, tax implications, and ESG alignment.
- Update policies and communications
Clearly communicate tax changes to employees. Provide guidance on vehicle selection, BiK rates, and salary sacrifice options.
- Optimise salary sacrifice schemes
Focus on EVs to maximise savings and compliance. Use financial modelling to demonstrate benefits to both employees and the business.
- Prepare for ECOS transition
Identify vehicles and employees affected by ECOS changes. Work with an industry expert, such as CBS to understand the future of ECOS.
- Engage with industry bodies and HMRC
Stay informed, we’ll keep you updated with the latest updates. Participate in consultations and webinars to shape future policy.
Choose the right fleet partner to keep you compliant
The upcoming changes to company car tax and emissions testing could represent a significant shift for UK fleets. Only time will tell what impact the review has. As we await further updates, if you’d like to discuss your current company car fleet or need helping to manage the proposed changes, get in touch today.