UK plug-in hybrids to dodge EU tax hikes for now

Plug-in hybrids in the UK could escape the big tax increases coming for similar models in Europe, thanks to a new government plan designed to keep them appealing for fleets and company car drivers.

Across the EU, new rules are coming into force that change how plug-in hybrids (PHEVs) are tested for CO2 emissions. This updated standard, called Euro 6e-bis, assumes these cars are driven less on electric power than previously thought. This means their CO2 ratings – and the taxes linked to them – will rise.

For example, a PHEV that currently emits 45g/km of CO2 could be officially rated as high as 122g/km by 2027, even without any physical changes to the car. That could mean losing the low-tax perks that have made PHEVs a go-to for business users.

But you may be spared from these new rules as the treasury secretary, James Murray, announced a two-year grace period starting in April 2026. During that time, carmakers will be allowed to keep using the older (and more generous CO2 figures under the previous Euro 6d standard.

Why have the rules changed?

The European Commission’s Euro 6e-bis emissions standard made its debut in January 2025 for new cars and is being phased in for all models by the end of the year.

Why did it come about? Several studies showed that real-world CO2 emissions from PHEVs are up to three and a half times higher than in lab tests. That’s largely because many drivers don’t plug them in and rely instead on the petrol engine.

Under the new test method, the so-called “utility factor” – how much of the driving is assumed to be on battery power – is being lowered. That gives a more realistic, but less flattering, CO2 figure.

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What does this mean for UK drivers?

Thinking about a PHEV or already have one? With this grace period, UK-sold PHEVs can continue to qualify for lower company car tax rates. Also, cars that emit less than 50g/km of CO2 get significant breaks, including big deductions against company profits. Go over that threshold, and the tax relief drops sharply.

But it’s not all good news. Even with these relaxed rules, you may still face higher first-year road tax bills and other tax changes in the future.

Thomas McLennan, from the British Vehicle Rental and Leasing Association, welcomed the move but warned there’s still uncertainty. “The prospect of testing regimes changing or official CO2 figures varying creates confusion,” he said. “We’re starting to get the clarity we need, but there are still other costs to consider.”

So, while this grace period may give you some breathing room, you should still keep an eye on the evolving rules around low-emission cars, especially if you’re relying on tax perks to buy a PHEV.

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