New rules for calculating PHEV emissions of carbon dioxide came into force on 1 January 2025 that could affect the tax breaks such cars currently enjoy, particularly impacting company car drivers. The rules immediately impact any plug-in hybrid launched from the start of 2025, but all existing PHEVs will have to be re-certified by the end of the year as well.
Sky-high miles-per-gallon and ultra-low CO2 emissions figures have always been central to the appeal of PHEVs. As UK vehicle excise duty and company car benefit-in-kind tax rates are based on CO2 emissions, the situation has allowed owners and company car drivers in particular to take advantage of the much lower rates PHEVs incur. However, those MPG and g/km figures are usually wildly optimistic, and that’s down to the way they’re calculated.
What changes are being made?
The process for measuring the fuel economy and CO2 emissions of any vehicle sold in the UK – and the European Union – is known as the WLTP cycle. For PHEVs, it starts by testing the car’s electric range; then the fuel consumption is measured with the car in hybrid mode, in which the engine and electric motors work together to maximise efficiency.
Significantly, the electric range is used to calculate a so-called utility factor, a percentage of the vehicle’s total mileage that will be driven exclusively on electric power. The higher the utility factor, the lower the CO2 emissions.
However, real world data shows the assumptions about how often PHEV drivers actually use their car’s battery-powered ability were well wide of the mark. The European Environment Agency (EEA) studied real world PHEV usage and found that drivers plugged in their plug-in hybrids rather infrequently. As a result, the EEA calculated average real world CO2 emissions from petrol-engined PHEVs of 134g/km, against the 38g/km published average. Diesel PHEVs averaged 155g/km.
The new testing procedure set out in the latest Euro 6e-bis vehicle emissions regulations assumes much lower mileage will be done on battery power. As a result, all PHEVs will see their published CO2 emissions increase significantly – some estimates suggest they could more than double – and that will affect how much tax owners will be liable for.
What it means for you
About 80% of UK PHEVs are registered to companies because there are generous tax incentives. But the changes mean fewer PHEVs will be eligible for them. The lowest company car tax bands apply under 50g/km, and the best salary sacrifice incentives are limited to 75g/km.
Buyers could be easily caught out, as well. All existing PHEV models – i.e. those available before 2025 – will have to be recertified before 31 December 2025, and the manufacturer could do that at any time. If it happens between an individual car being ordered and manufactured, the new certification will apply, landing you with a bigger tax bill. So, if you’re thinking about getting a PHEV, it could well be better to do so sooner rather later.
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