Higher Tax Rates on PHEVs from 2025
PHEVs have long benefited from lower tax rates, making them an attractive choice. However, from 1st January 2025, company car users will face stricter emissions testing for both new and existing PHEVs. The testing distance will increase from 497 miles to 1,367 miles, providing a more accurate reflection of real-world usage. As a result, Benefit-in-Kind (BiK) rates are expected to rise under a stricter emissions framework.
Introduction of the Euro 6e-bis Emissions Standard
One of the most significant changes is the introduction of the Euro 6e-bis emissions standard, which imposes tighter restrictions on NOx, CO, hydrocarbons, and particulates. For businesses, ensuring vehicles meet Euro 6 compliance is crucial to avoiding extra charges in low-emission zones, reducing environmental impact, and maintaining fuel efficiency. These changes could mean paying thousands more per year in tax for driving the same vehicle.
Impact on Businesses and Employees
Businesses operating PHEVs will face higher tax rates and National Insurance costs, making fully electric vehicles a more attractive alternative. With this change in place, businesses will likely need to reevaluate their vehicle policies, prompting a shift in procurement plans. Employees, particularly higher-rate taxpayers, could see a substantial increase in tax liability, making it essential to review salary sacrifice schemes and company car policies to mitigate additional costs.
Why Your Model and Production Date Matter
Choosing the right PHEV model and understanding its production date is critical. Newly launched 2025 models will automatically meet the updated standard, providing clarity on CO2 values upfront. For existing models available before 1st January 2025, manufacturers will determine when in 2025 the new standard applies. If implemented soon after your order, your vehicle’s CO2 value may change by delivery. The production date, not the order date, is what determines CO2 emissions. Most manufacturers are expected to delay implementation until the end of 2025.
Conclusion
Although these adjustments could lead to increased costs for company car users, they aim to create a more equitable tax system across all vehicle categories. The 2025 revisions to PHEV vehicle taxation align with a broader effort to make emissions testing more representative of real-world driving - these are updates businesses and employees will need to consider heavily.