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 as per the below requirements:-

• vehicle was first registered on or after 1 January 2025
• vehicle’s CO2 emissions figure is 51 or more
• vehicle was registered under any emission standard other than Euro 6d-ISC-FCM or Euro 6e
• car’s electric range figure is 1 or more

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

On the vehicle details page there is a 'tick box' for Plugin Hybrid Electric Vehicle where you can mark a car as a 'PHEV'.

The software will then check the car details to see if they meet the HMRC easement requirements and where applicable apply the easement rules to that car.

N.B the software will not change the CO2 value in the car details but will apply the lower percentage rate which can be seen in the 'Show Calculations' screen.

Example 1 - Non Easement calculations

Example 2 Easement applied calculations