Changes to Company Car Tax Breaks for Plug-in Hybrid Vehicles
As of 1 January, some vehicles may lose their company car tax breaks due to changes in the way plug-in hybrid (PHEV) fuel efficiency and CO2 emissions are calculated. These reforms come in response to criticism that published fuel economy figures for PHEVs do not accurately reflect real-world performance, impacting their contribution to reducing CO2 emissions.
When calculating a PHEV’s efficiency, its electric range and fuel consumption in hybrid mode are tested. The electric range determines a ‘utility factor’, indicating the percentage of total mileage that will be covered on battery power.
However, real-world data shows that drivers may not always plug in their PHEVs, leading to higher CO2 emissions than advertised. For example, a study of petrol PHEVs found that drivers averaged 134g/km of CO2 emissions compared to the advertised 38g/km, highlighting a significant gap. Diesel PHEVs fared even worse, with CO2 emissions averaging 155g/km, far exceeding the 34g/km brochure figure.
The new Euro 6e-bis test standard aims to address this discrepancy by adjusting the utility factor to assume less electric driving. This means PHEVs will need to offer a longer electric range to achieve a substantial reduction in CO2 emissions.
Starting from 1 January 2025, Euro 6e-bis will apply to new models, with all new car and van registrations following suit a year later. Manufacturers have until 31 December 2025 to re-test their entire lineup, leading to changes in published CO2 emissions throughout the year.
According to the International Council on Clean Transportation (ICCT), CO2 emissions for a PHEV with a 70km electric range could double from 45g/km to 96g/km under the new standard.
Fleets are advised to monitor these changes closely, as vehicles’ CO2 emissions are determined at the time of manufacture. This could result in fluctuations between ordering and delivery, particularly towards the end of the year. For instance, a PHEV exceeding the 50g/km CO2 limit may lose access to ultra-low company car tax bands and other incentives.
With around 80% of new PHEVs registered to companies, the impact of these changes is significant. Many fleets are already transitioning away from PHEVs in favor of battery electric vehicles (BEVs) due to the upcoming phasing out of company car tax incentives starting in April 2028.
