Will your next company car be a plug-in hybrid?

2025 introduces a technical change to company car tax, which could alter your next choice of car.  

In recent years, the tax rules for company cars have provided a major incentive to choose a battery electric vehicle (BEV), with zero CO2 emissions, or a plug-in hybrid electric vehicle (PHEV) with CO2 emissions of 1-50g/km.

While there is no argument that a pure BEV produces no CO2, the amount of CO2 emitted by PHEVs has been called into question. A PHEV that could cover only 30–40 miles using the battery alone can have official CO2 emissions that are less than a fifth of its petrol or diesel counterpart. That surprising difference is also revealed in the official fuel consumption figures, which sometimes suggest a PHEV can cover over 200 mpg against the low 30s for the fossil fuel-only version.

That CO2 difference is now about to shrink considerably because of the replacement of the old WLTP CO2 emission test with the Euro 6e-bis standard. This new measure has been introduced by the EU as a stepping stone to a new set of emission tests, which aim to better reflect ‘real world’ emissions. Euro 6e-bis has applied to all newly launched PHEVs since 1 January 2025 and will apply to all newly manufactured PHEVs from 1 January 2026. During the current year, manufacturers will have their existing PHEVs re-tested and certified under the new regime in preparation for 2026. There are few published comparisons between the two tests for the same vehicle, but one estimate is that the CO2 emission figure could nearly double.

For company car tax purposes, Euro 6e-bis will be used in place of the old WLTP as it becomes available. However, if you have a PHEV already, then your company car tax will continue to be based on the emission figure that applied when the car was registered. If you are changing to a PHEV this year, you may find that between ordering your new car and its delivery, the emission basis changes from WLTP to Euro 6e-bis. The result could be more than a doubling in the level of company car tax. If you are relying on a salary sacrifice scheme, the outcome could be even worse if the new measure is over 75g/km.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.