By Tash Turner, Specialist Consultant at Ayvens UK
As of 1 January 2025, the UK has adopted the stringent Euro 6e-bis emissions standard for newly launched plug-in hybrid vehicles (PHEVs), aligning with EU regulations. This change significantly reshapes how emissions are measured and reported, impacting fleet managers, drivers, and corporate tax liabilities.
What is changing with Euro 6e-bis?
The new Euro 6e-bis standard extends the emissions testing distance for PHEVs dramatically—from roughly 500 miles to around 1,400 miles—reflecting a more realistic portrayal of real-world driving conditions. This extended test considers how often vehicles switch between battery-only and petrol modes, adjusting the Utility Factor (UF) to assume a lower proportion of battery-only driving based on typical charging habits.
The result? Much higher official CO₂ figures for many PHEV models that previously recorded emissions under 50 g/km.
The tax implications for fleet managers and drivers
Benefit-in-Kind (BiK) tax rises
For years, PHEVs with emissions below 50 g/km qualified for low BiK rates, sometimes as low as 3% for the 2025/26 tax year, depending on electric-only range. However, with the increased CO₂ ratings under Euro 6e-bis, many PHEVs will jump into higher BiK tax bands of 16% to 20%. For some drivers, this could mean their BiK tax payments nearly double.
It's important to note that even PHEVs that remain under the 50 g/km threshold will face a flat 18% BiK rate from 2028, regardless of their electric range.
Total Cost of Operation (TCO) and employer costs
Aside from BiK tax increases for drivers, fleet operators face uncertainty around Total Cost of Operation due to employer National Insurance Contributions (class 1a NICs) and lease disallowance thresholds tied to emissions above 51 g/km. Without clear government guidelines on potential easements beyond 2026, fleet budgets may face increased tax burdens.
Notably, Mercedes was the first manufacturer to retest its PHEV lineup under these rules, revealing a 253% increase in average CO₂ emissions for their PHEVs—from 15 g/km pre-testing to 53 g/km post-testing. This has generated an indicative monthly increase of £60 in TCO for based on current tax and legislation.
Strategic actions for fleet managers
- Review current and future PHEV models carefully: New or undelivered PHEVs ordered after January 2025 are subject to these new emissions standards and potentially higher BiK taxes.
- Reassess fleet policies and leasing strategies: Without clarity on employer NICs and leasing disallowance adjustments, modelling future fleet costs requires caution and flexibility.
- Consider alternative technologies: Fully electric vehicles (BEVs) continue to offer tax advantages and may provide more predictable TCOs.
- Educate drivers: Communicate likely tax changes to drivers to prepare them for potential increases in their BiK payments.
Summary:
- From January 2025, all new PHEVs in the UK must comply with the Euro 6e-bis emissions testing standard, which is more representative of real-world conditions and will show higher CO₂ emissions.
- Higher CO₂ figures mean PHEVs previously benefiting from low BiK rates will face significant tax increases, impacting both drivers and businesses.
- Total Cost of Operation is expected to rise due to increased employer taxes and lease disallowances linked to higher emissions, though government easements may alter this landscape in the future.
- Fleet managers should proactively review fleet mix, leasing agreements, and driver communications to mitigate unexpected tax exposure and optimise fleet strategies.
Euro 6e-bis marks a pivotal moment for the UK plug-in hybrid market. Staying informed and adaptive is essential to managing the cost and compliance challenges ahead.
