Plug-in hybrids sold in the UK could avoid planned changes across Europe to how CO2 figures are calculated in a bid to keep their appeal to fleet buyers.

Under the changes, the European Commission’s latest Euro 6e-bis emission standard will assume a lower share of a PHEV's electric-only mileage, resulting in a more representative (and higher) CO2 figure. 

This would result in tax hikes and therefore a loss of the benefit-in-kind incentive that has driven the powertrain's popularity among fleet buyers.

However, the UK has revealed “easement” plans to continue encouraging the take-up of lower-carbon vehicles. 

What are the EU's changes?

The European Commission’s latest Euro 6e-bis emission standard was introduced in January 2025 for new vehicle launches, and manufacturers have until the end of the year to retest their entire model range.

Although the focus is pollutant emissions, the new standard includes an adjusted ‘utility factor’ for PHEVs that assumes a lower share of that vehicle’s mileage is driven on battery power, offering a more representative CO2 figure. 

It follows a study of real-world data showing PHEVs emit three and a half times more CO2 on the road than during the official test cycle. 

In December 2022, the International Council for Clean Transportation (ICCT) warned that Euro 6e could raise a 45g/km PHEV’s CO2 emissions rating to 96g/km, then 122g/km when the second adjustment is applied in 2027. That’s without any mechanical changes to the vehicle. 

Although Euro 6e compliance isn’t mandatory in post-Brexit UK (excluding Northern Ireland), vehicles engineered or retested for other markets would be imported with figures derived from the new test. 

This could hurt manufacturers’ ability to meet average CO2 targets (and earn credits that can be counted as zero-emission vehicle sales) and have tax implications for CO2-incentivised fleets, which account for more than 80% of new PHEVs. 

Cars emitting 50g/km CO2 or less qualify for low company car tax bands and more generous relief from corporation tax. Businesses can offset 100% of lease costs, or 18% of the purchase cost, against their pre-tax profits. Those rates fall to 85% and 6% respectively above that threshold. 

What is the UK planning?

In a statement, Treasury secretary James Murray confirmed plans for a two-year “easement” from April 2026, enabling manufacturers to publish CO2 figures based on the outgoing Euro 6d standard – a proposal originally put forward as part of the ZEV mandate consultation last December. 

During that period, manufacturers can either continue to use pre-2025 type approval data or convert new Euro 6e-bis figures back to a Euro 6d equivalent. This will mean some models have lower published CO2 figures than an identical car sold in other European markets. 

Final legislation will be published in a future finance bill, following a public consultation.

The Association of Fleet Professionals welcomed the proposal, with chair Paul Hollick adding that PHEVs are already facing company car tax rises from April 2028. From that date,  all vehicles between 1-50g/km of CO2 will fall into a single 18% band, instead of multiple rates according to their electric range.

Hollick said: “Our view is that it would be unfair if tax on company cars was increased beyond the levels announced in the Budget. 

“We hope the planned easement makes this possible and that the situation is resolved as quickly as possible. Many fleets and drivers have understandably been holding back from ordering PHEVs until they know what they will be paying. Given that the new legislation will take effect in April 2026, which is not necessarily that far away in terms of placing car orders, a speedy resolution would make sense.”

Thomas McLennan, director of policy and public affairs at the British Vehicle Rental and Leasing Association, agreed that certainty is critical for fleets.

He said: “The prospect of testing regimes changing or official CO2 figures varying creates confusion and causes companies to second guess when decisions should be made.

“We are starting to get the certainty we need, but while PHEVs will still be attractive for OEMs and company car drivers, it looks like they will still be hit by higher first-year vehicle excise duty (VED) payments, along with other tax impacts.”