The UK Government has introduced a temporary tax easement to prevent a sharp rise in company car tax for plug-in hybrid vehicles (PHEVs), following changes to emissions testing rules. This applies to employees only!!!
Why the change is needed
New emissions standards (Euro 6e/6e-bis) are increasing the official CO₂ figures for many PHEVs. Because company car tax (Benefit-in-Kind or BiK) is linked to CO₂ emissions, this would have pushed many drivers into higher tax bands—despite no real change in vehicle performance.
What the easement does
To offset this, the Government will temporarily assign a nominal CO₂ value of 1g/km to eligible PHEVs for BiK purposes.
- This means tax will be calculated based on electric driving range, not inflated emissions figures
- It effectively keeps many PHEVs in lower tax bands.
Who qualifies
The easement applies to PHEVs that:
- Were registered between 1 January 2025 and 5 April 2028
- Meet certain emissions and regulatory criteria (generally those affected by the new standards).
Key dates
- Applies retrospectively from: 1 January 2025
- Runs until: 5 April 2028
- Transitional support lasts until: 5 April 2031.
Why it matters
Without this intervention, drivers could have faced a “cliff-edge” increase in tax bills due to technical changes in emissions testing rather than real-world emissions.
The policy:
- Protects around 150,000 company car drivers from higher costs
- Maintains consistency in company car taxation across the UK
- Helps avoid disruption to fleet, leasing, and salary sacrifice schemes
The easement is designed as a temporary bridge while the industry adjusts to new emissions standards, supporting continued uptake of lower-emission vehicles without penalising drivers unfairly.
Wider impact -
The easement applies only for employment tax purposes (company car tax, salary sacrifice, OpRA and fuel benefit). However, the easement has no impact on the CO2 values used for any other taxes, such as VED, capital allowances, corporation tax disallowance for leased vehicles or VAT on fuel for private use. So in simple terms :
- Cars with a true CO2 of over CO2 50g/km will have a higher road tax than a car that has a real-life CO2 of below CO2 50g/km ie the CO2 1g/km mentioned above DOES NOT apply when it comes to road tax.
- Class 1a NI payments that the business has to pay HMRC for providing an employee a company car - these again will NOT have a generic CO2 1g/km - it will be based on the true CO2 of the car.
PHEV's in N.Ireland - different CO2's to those in GB.
Emissions standards: Euro 6e-bis
Euro 6e bis is a new administrative emissions standard used across Europe. It slightly alters how CO₂ emissions are calculated—particularly for plug in hybrids (PHEVs)—but does not change the actual performance or environmental impact of your PHEV.
• Great Britain: Does not use Euro 6e-bis; cars must meet Euro 6d. Therefore, not all manufacturers have implemented Euro 6e-bis test results inot their product range in Great Britain for 2026.
• Northern Ireland: Requires Euro 6e-bis for cars registered from 1 January 2026.
If you take these 3 model of cars as an example of manufacturers who have not implemented Euro 6e-bis:
1) LAND ROVER RANGE ROVER ESTATE 3.0 P460e Autobiography 4dr Auto - P11D Value £134,810 (24/4/26)
CO2 for a car ordered from a dealer in Great Britain - CO2 17g/km
CO2 for a car ordered from a dealer in N.Ireland - CO2 67g/km
The employee's BIK percentage is CO2 1g/km ie if you have 2 employees taking delivery of this car, one in Leeds and one in Belfast - they both pay the same Benefit in Kind tax. ie £134,810 (EV range is 73 miles and CO2 treated as CO2 1g/km, this is 7% on the BIK table) = BIK amount of £9,436.70 - means a 20% tax payer will pay £157.28 per month, or a 40% tax payer will pay £314.56 per month.
The company's perspective - it is different
(i) VED - The car in Leeds has a 1st year road tax of £115, the same car in Belfast has a 1st year road tax of £135 (2026/27 RFL rates). VED is included in the lease rental.
(ii) Leasing disallowance - if your business contract hires the same cars for your 2 employees :
- the car in Leeds - you can offset 100% of the net finance costs against your taxable profits as the CO2 is below 50g/km ie 17g/km.
- the car in Belfast - you can only offset 85% of the net finance costs against your taxable profits as the CO2 is above 50g/km ie 67g/km.
(iii) Class 1a NI payment -the P11D value is £134,810 for a standard car. This would mean
- car in Great Britain - true BIK amount based on real CO2 17g/km is 7% for 2026/27 tax year - this is £9,436.70 - class 1a NI is calculated at 15% ie £9,436.70 x 15% = £1,415.50 one-off annual payment to HMRC for providing an employee this BIK.
- car in N.Ireland - true BIK amount based on real CO2 67g/km is 20% for 2026/27 tax year - this is £26,962.00 - class 1a NI is calculated at 15% ie £26,962.00 x 15% = £4,044.30 one-off annual payment to HMRC for providing an employee this BIK.
2) BMW 3 SERIES SALOON 330e 22.3 kWh M Sport 4dr Step Auto - P11D Value £48,270 (24/4/26)
CO2 for a car ordered from a dealer in Great Britain - CO2 19g/km
CO2 for a car ordered from a dealer in N.Ireland - CO2 55g/km
The employee's BIK percentage is CO2 1g/km ie if you have 2 employees taking delivery of this car, one in Leeds and one in Belfast - they both pay the same Benefit in Kind tax. ie £48,270 (EV range is 63 miles and CO2 treated as CO2 1g/km, this is 10% on the BIK table) = BIK amount of £4,827 - means a 20% tax payer will pay £80.45 per month, or a 40% tax payer will pay £160.90 per month.
(i) VED - The car in Leeds has a 1st year road tax of £115, the same car in Belfast has a 1st year road tax of £135 (2026/27 RFL rates). VED is included in the lease rental.
(ii) Leasing disallowance - if your business contract hires the same cars for your 2 employees :
- the car in Leeds - you can offset 100% of the net finance costs against your taxable profits as the CO2 is below 50g/km ie 19g/km.
- the car in Belfast - you can only offset 85% of the net finance costs against your taxable profits as the CO2 is above 50g/km ie 55g/km.
(iii) Class 1a NI payment -the P11D value is £48,270 for a standard car. This would mean
- car in Great Britain - true BIK amount based on real CO2 19g/km is 10% for 2026/27 tax year - this is £4,827.00 - class 1a NI is calculated at 15% ie £4,827.00 x 15% = £724.50 one-off annual payment to HMRC for providing an employee this BIK.
- car in N.Ireland - true BIK amount based on real CO2 55g/km is 17% for 2026/27 tax year - this is £8,205.90 - class 1a NI is calculated at 15% ie £8,205.90 x 15% = £1,230.89 one-off annual payment to HMRC for providing an employee this BIK.
3) VOLVO XC60 ESTATE 2.0 T6 [335] PHEV Plus Dark 5dr AWD Geartronic - P11D Value £61,095 (24/4/26)
CO2 for a car ordered from a dealer in Great Britain - CO2 20g/km
CO2 for a car ordered from a dealer in N.Ireland - CO2 61g/km
The employee's BIK percentage is CO2 1g/km ie if you have 2 employees taking delivery of this car, one in Leeds and one in Belfast - they both pay the same Benefit in Kind tax. ie £61,095 (EV range is 50 miles and CO2 treated as CO2 1g/km, this is 10% on the BIK table) = BIK amount of £6,109.50 - means a 20% tax payer will pay £101.82 per month, or a 40% tax payer will pay £203.64 per month.
(i) VED - The car in Leeds has a 1st year road tax of £115, the same car in Belfast has a 1st year road tax of £135 (2026/27 RFL rates). VED is included in the lease rental.
(ii) Leasing disallowance - if your business contract hires the same cars for your 2 employees :
- the car in Leeds - you can offset 100% of the net finance costs against your taxable profits as the CO2 is below 50g/km ie 19g/km.
- the car in Belfast - you can only offset 85% of the net finance costs against your taxable profits as the CO2 is above 50g/km ie 57g/km.
(iii) Class 1a NI payment -the P11D value is £61,095 for a standard car. This would mean
- car in Great Britain - true BIK amount based on real CO2 20g/km is 10% for 2026/27 tax year - this is £6,109.50 - class 1a NI is calculated at 15% ie £6,109.50 x 15% = £916.43 one-off annual payment to HMRC for providing an employee this BIK.
- car in N.Ireland - true BIK amount based on real CO2 61g/km is 19% for 2026/27 tax year - this is £11,608.05 - class 1a NI is calculated at 15% ie £11,606.50 x 15% = £1,741.21 one-off annual payment to HMRC for providing an employee this BIK.
In all 3 scenarios below - the same vehicle in N.Ireland has :
1) higher road tax
2) lower amount of rental offset against the leasing allowance
3) a far higher annual class 1a NI payment.
Final word on PHEV's in N.Ireland
Some manufacturers like Volkswagen, Audi, Skoda and Porsche have had their cars tested under a dual approval system - this has seen their CO2's increase from previous year models, the higher CO2 models entering the N.Ireland and Great Britain market since 1/1/26 - this means that cars ordered from a dealer in Belfast and Leeds will have the exact same CO2.
"Car tourism"
We are seeing evidence of companies in N.Ireland ordering Land Rover PHEV product from dealers in Great Britain so they can use the lower CO2's to get the maximum 100% leasing disallowance. These cars are then re-registered to N.Ireland soon after delivery (the CO2 only applies at point of registration and does not change once it is re-registered to N.Ireland).
Do you need advice?
Get in touch if you are interested in a PHEV for a company car and we will check the CO2 and provide the accurate taxation information before you order the car, email sales@everyvehiclelease.co.uk or telephone 028 9693 6363 for business contract hire throughout the United Kingdom.