HMRC Easement for PHEVs

Background

New EU emissions rules which were recently implemented have increased the published CO2 figures for most plug-in hybrid electric vehicles (PHEVs). Whilst this change has a limited effect on private vehicle purchases, it does threaten higher company car tax rates for employees, as the benefit in kind (BiK) calculation is based on the CO2 figure. The PHEV market in the UK is 80% fleet-weighted due to these low CO2 tax perks, which means this is important for UK benefit handling.

The Treasury has therefore introduced an ‘easement' to protect most PHEVs by allowing the use of a nominal 1g/km CO2 rating for qualifying models registered between January 1st, 2025 and April 5th, 2028, keeping them in low benefit-in-kind (BIK) tax bands through until 2031.

This easement forces the cash equivalent calculation to be based on the ‘electric range’ (the distance the car can travel on battery alone) – this means that this range will need to be entered into P11D Organiser going forward.

Examples

Euro 6e-bis rules assume lower real-world electric usage for PHEVs, effectively pushing CO2 emissions higher without any mechanical changes. For instance, a Vauxhall Astra PHEV rises from 30g/km to 51g/km based on the new tests, which would have increased the appropriate percentage from 13% to 16%, so the easement will prevent a tax hikes for most employees.

One interesting (and unintended) loophole means high CO2 emitting PHEVs like the Bentley Bentayga, which emits 82g/km CO2, see a reduction to the 15% BiK band from 22%, saving high earners as much as £12,000 over three years!

Changes to P11D Organiser

P11D Organiser will be enhanced in the new version to fully handle the easement in the 2026-2027 tax year and moving forward, with both manual entry and import routines updated to assist in compliance. Cars that are being affected will be highlighted, ensuring visibility of the easement being applied.

As this easement was introduced late in 2025 and the effect is ‘backdated’, we are also working on a way to identify any cars affected that may already be in the system, allowing customers to update the relevant car details with any necessary extra information (like range if it was not already there).