COMPLIANCE
a higher chargeable value, which nudges company car users towards vehicles with lower emissions. Putting it into practice For example, a petrol-engined Audi A3 Sportback has a list price of £33,970 and a CO 2 emissions figure of 138g/km*. The appropriate percentage for 138g/ km is 33% for the 2025/26 tax year, so the car’s chargeable value for the year is £33,970 x 33%, which is £11,210.10. For comparison, Audi’s A6 E-Tron Sportback has a significantly higher list price of £71,040 but, because it’s fully electric, it has zero CO 2 emissions. Its appropriate percentage is currently 3%, so the E-Tron’s chargeable value is only £2,131.20. Lower charges for PHEVs While sales of fully electric cars are growing steadily, concerns about their limited range have made PHEVs an attractive compromise. Especially since April 2020, when lower appropriate percentages were introduced for cars with CO 2 emissions of up to 50g/km. Appropriate percentages for low emission cars are based on the number of miles they can be driven using only a fully charged battery, known as zero emission miles. Putting it into practice Audi’s A3 Sportback hybrid has a list price of £38,710, CO 2 emissions of 26g/km and up to 88 zero emission miles. The appropriate percentage for 88 zero emission miles is 6% for the 2025/26 tax year, so the car’s chargeable value is £38,710 x 6%, which is £2,322.60. So, PHEV users still make significant savings when compared to fully petrol or diesel car users, without the ‘range anxiety’ associated with fully electric cars. There are also tax advantages for companies who lease or invest in low emissions company cars. A shock coming? Unfortunately, it became clear that, in real-world driving conditions, PHEVs use their petrol or diesel engines more often than anticipated by the standard emissions test, Euro 6e. As a result, PHEV CO 2 emissions have routinely been underestimated.
An improved standard, Euro 6e-bis, was implemented across the European Union from 1 January 2025, and car manufacturers have until the end of 2025 to retest their vehicles and publish new figures. The Government hasn’t implemented this standard to vehicles registered in Great Britain yet. An industry factsheet 2 published in January quoted Department for Transport examples of PHEV CO 2 emissions values which double under the new standard – even tripling for cars with high zero emissions miles. So long as the new figure is still below 50g/km, the appropriate percentage isn’t affected, but as soon as that threshold is crossed, the effect can be dramatic. Putting it into practice Let’s look at the possible impact on the Audi A3 Sportback PHEV for the 2026/27 tax year. Using its current CO 2 emissions figure of 26g/km, the appropriate percentage would be 7% (low emission appropriate percentages increase by 1 percentage point). The chargeable value would be £2,709.70, up from £2,322.60 – approximately a 17% increase. But if the CO 2 emissions figure doubles to 52g/km under the new testing standard, the 50g/km threshold is crossed and the lowest appropriate percentages are no longer available. The appropriate percentage for 52g/km will be 17% next year, so the chargeable value would jump from £2,322.60 to £6,580.70 – approximately a 183% increase. Such a significant hike in chargeable values could encourage users and companies to abandon PHEVs. Some may switch to fully electric cars, but high mileage users may go back to petrol or diesel cars because the cost difference will be greatly reduced. That would be contrary to the Government’s plan to end sales of non-electric vehicles.
Understandably, there’s been some alarm in the fleet management industry about these potential changes, particularly the speed of them, because leasing arrangements and capital write- downs operate on longer timescales. There have been calls for clarity
about the Government’s plans and transitional arrangements to reduce the impact.
What happens next? In July 2025, a ministerial statement signalled the Government’s intention to implement the Euro 6e-bis standard for vehicles registered in Great Britain from April 2026, although officially this is subject to consultation. A two-year easement is planned, which would disapply the changes for PHEVs registered before the rule change, meaning current emissions figures would continue to apply and most existing contracts could run their course. Possible implications for employers include: l pressure to bring forward purchasing and leasing plans to beat the April 2026 registration deadline l reconsidering the range of vehicles they make available in the future l reviewing salary sacrifice and other optional remuneration arrangements, which are often used to provide company cars l balancing reward strategies to ensure fairness between current and future company car users. Until the Government takes action to put these PHEV changes into effect, they may continue to be somewhat under the radar in reward, benefit and payroll circles. But the cost implications are potentially significant, both to company car users and to their employers, so this is a topic to keep an eye on and start preparing for. o Links corner 1. Work out the appropriate percentage for company car benefits (480: Appendix 2): https://ow.ly/ Xmtu50XchCB 2. Emission testing of plug-in hybrid vehicles: https://ow.ly/7Et550XchEL.
Putting it into practice For example, if the Audi’s CO 2
emissions figure triples to 78g/km in 2026/27, its chargeable value would be £8,129.10 (21%). This is much closer to the petrol version’s chargeable value of £11,210.10 (33%, unchanged).
* Note that figures for the cars used in these examples come from www.parkers.co.uk and vary by model and trim.
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| Professional in Payroll, Pensions and Reward |
Issue 115 | November 2025
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