The UK Treasury’s recent policy shift regarding company car tax for plug-in hybrid vehicles (PHEVs) has inadvertently created a loophole, disproportionately benefiting manufacturers of higher-emitting and more expensive models. This “easement,” designed to shield drivers from increased tax burdens, allows companies to manipulate CO2 emission figures, keeping luxury PHEVs in lower tax brackets.
New Emissions Rules & The Brexit Divergence
Starting January 1, 2024, new Euro 6e-bis emissions standards across the EU introduced a more realistic calculation of CO2 emissions for PHEVs, factoring in lower real-world electric driving percentages. This means many PHEVs, mechanically unchanged, would show higher CO2 figures when retested.
The key point is that this retesting would push some vehicles into higher tax bands.
The UK, having diverged from EU regulations post-Brexit, could have required manufacturers to comply with the older Euro 6d-ISC-FCM standards. However, most vehicles already meet the newer Euro 6e standard anyway, as it doesn’t significantly affect CO2 emissions.
The EU’s updated rules would have forced manufacturers to either retest vehicles using older standards for the UK market or lose some of their tax advantages.
The Treasury’s “Easement” & Its Consequences
To prevent a surge in company car tax for PHEV drivers, the Treasury announced an “easement” over the summer. This allows manufacturers to either convert Euro 6e-bis CO2 figures back to older standards or continue using existing data, keeping affected vehicles under the 50g/km threshold until April 5, 2028.
The latest Budget proposal further complicates matters: Euro 6e-bis compliant cars emitting over 50g/km will be assigned a nominal 1g/km CO2 figure, provided they offer at least one mile of electric range and were registered after January 1, 2025.
Real-World Impact: A Case Study
Consider the Vauxhall Astra Sports Tourer GS PHEV. Under Euro 6e-bis, its CO2 emissions rise from 30g/km to 51g/km, shifting it from a 13% tax band to 16%. This would increase a 20% income taxpayer’s BIK tax bill by £3,522 over three years.
The Treasury’s intervention prevents this increase, but effectively subsidizes higher-emitting vehicles at the expense of fiscal consistency.
Why This Matters
The UK’s PHEV market is heavily reliant on low-published CO2 emissions, accounting for 80% of fleet sales. This policy shift not only benefits manufacturers but also distorts the incentive structure, potentially encouraging the purchase of less efficient vehicles. The long-term implications include delayed adoption of truly zero-emission vehicles and continued reliance on PHEVs as a transitional technology.
The Treasury’s “easement” ensures that luxury PHEVs remain financially attractive to company car drivers, while undermining the effectiveness of emissions-based taxation.
