Euro 6e-bis emissions standard has major tax implications for PHEVs

-The Euro 6e-bis emissions standard, which took effect in Europe in January 2025, could have a major impact on the taxation of plug-in hybrid vehicles (PHEVs) in the UK if the Government follows suit, as expected, in January 2026.

Matt Walters (left), Head of Consultancy and Customer Value at Ayvens, offers insight into the technical shifts of the new testing standard – and why the timing of the announcement is a critical element for preparing stakeholders for change.

CO2 figures of some PHEVs could triple

At its core, the new testing regime changes how vehicle CO2 ratings are calculated, with some PHEV models seeing their figures double – or even triple. This has major implications for tax categorisation. Data from Ayvens’ 2025 Tax and Funding Guide illustrates how such steep increases could translate into significant additional costs for businesses and employees alike.

Currently, companies can cut their tax bills by nearly half over a typical 48-month lease (2025–2029) by choosing a PHEV over a petrol alternative, thanks to lower emissions ratings. A substantial revision to those figures under the new standard could mean thousands of pounds in additional tax over the same period.

Many vehicles that currently qualify as ‘leased low-emission cars’ (defined as emitting 50g/km of CO₂ or less) may no longer meet the threshold for 100% corporation tax relief. The same risk applies to vehicles leased through salary sacrifice schemes. Today, cars emitting up to 75g/km are taxed as company cars at ultra-low rates. That advantage may soon disappear if those vehicles breach the emissions ceiling.

Additional tax complexities of Euro 6e Standard

Beyond the main implications, Euro 6e-bis introduces some other specific challenges. Companies deducting their leasing costs from taxable profits are subject to a flat 15% restriction on vehicles that emit over 50g/km CO2. Under the new standards, many leased PHEVs will again cross the threshold, turning what was a fully deductible business expense into something more costly.

Additionally, leasing companies face complications regarding capital allowance pools which may affect pricing and leave leasing firms financially exposed. Because the transition in testing standard is yet to be formally confirmed by the UK Government, leasing companies are currently quoting vehicles at a particular price point that is reflective of the anticipated tax relief that comes with the leasing of a low-emission vehicle (tax relief over a five-year period, rather than a thirty-year period).

On an individual level, there’s the risk of unequal treatment among company employees due to the regulatory change. For example, one employee may be using a vehicle they obtained through salary sacrifice under current standards, but if another employee attempted to do so through the scheme under the new standard in a year’s time, they may well find the same car to be ineligible for that scheme as it now sits outside the emissions threshold.

How the industry is preparing for change

If we’re to assume that there’ll be no movement from the Government on the change in testing standards prior to the summer recess (end of July), leasing companies will have no choice but to adapt to the changing landscape. To protect their customers amid the current instability, Ayvens is accounting for these potential changes in their quotes moving forward and is being cautious about extending order banks into January.

It’s also an opportune moment to develop contingency plans in case of a sudden change in momentum from the Government, and maintaining a transparent line of communication with customers is important to avoid any discord and stay clear of becoming financially exposed. Ultimately, the interconnected nature of these tax implications makes adaptation difficult, but until there’s legislative clarity and a defined timeline, the industry must work around the issue.