Do you know that there are major changes that will impact your BiK tax, and possibly make life very difficult for both Fleet Managers and business owners, as well as your employees?
Well, let's find out why and how you can prepare for them ahead of time.
Table of Contents
- What is the Euro 6e-bis Easement?
- Who Is Affected and When?
- Key Dates for the New Standard and Easement To be Aware Of
- Why Was the Easement Introduced?
- How Does Euro 6e-bis Change Emissions Testing?
- What Does This Mean for Company Car Drivers and Fleets?
- Impact on Fleets and Business Costs
- The Corporate Finance Impact With Capital Allowances and Leasing
- Action Points for Fleets, Drivers, and Businesses
- Operational Reality and Future Market Positioning
- Future Standards Incomming
- Government Policies and The Industry Response
- What Does This Mean for Fleets and Drivers?
What is the Euro 6e-bis Easement?
The Euro 6e-bis easement is a temporary, two-year tax break introduced by the UK government.
However, this runs from April 2026 to April 2028, and it aims to soften a major tax increase on plug-in hybrid electric vehicles (PHEVs) used as company cars.
However, the problem is that a new, stricter emissions test (called Euro 6e-bis) will soon make PHEVs look much more polluting on paper.
Company Car tax
Because company car tax (Benefit-in-Kind, or BiK) is based on these official CO₂ figures, the tax for drivers would jump suddenly as a result.
The easement, though, is designed to smooth out this rise and give businesses time to adjust.
Who Is Affected and When?
Let's break this down into a few sections.
For instance, first up, we have the vehicles that will be affected.
1. Affected Vehicles
New plug-in hybrid electric vehicles (PHEVs) registered from April 2026 onwards in Great Britain, or from January 2025 in Northern Ireland.
2. Unaffected Vehicles
Any PHEV registered before April 2026 (or before January 2025 in Northern Ireland) will keep its original, lower CO₂ rating and tax band for the entire term of the lease/ownership.
3. Company Car Drivers
Those ordering new PHEVs that will be registered from April 2026 will see their monthly BiK tax bill could increase sharply without the easement, and it could also, in turn, affect your company car salary sacrifice provision that you have in place as a result.
4. Fleet Managers
Those responsible for vehicle procurement and setting company car policies, as the financial viability of PHEVs is changing, will also be affected.
Key Dates for the New Standard and Easement To be Aware Of
Some key dates to be aware of include, for instance:
January 2025
Euro 6e-bis testing begins for new PHEV models in the EU and Northern Ireland.
April 2026
The new, higher Euro 6e-bis CO₂ figures officially apply to new PHEV registrations for BiK tax purposes in Great Britain. The temporary easement period will then begin.
April 2026 – April 2028
The two-year easement period is active to mitigate the tax hike.
April 2028
The easement ends, and the full impact of the higher Euro 6e-bis CO₂ figures will be reflected in BiK tax rates.
Why Was the Easement Introduced?
The government introduced the easement to prevent a "cliff-edge" tax rise that could suddenly make PHEVs unaffordable for company car drivers.
PHEVs have been key in helping fleets reduce their average CO₂ emissions, and a sudden, sharp tax hike would discourage their use, potentially slowing the transition away from pure petrol and diesel cars.
As a result, by softening the tax increase for two years, the government aims to give manufacturers time to develop more efficient PHEVs that perform better in the new tests, and to give fleets and drivers time to plan their next move, whether that's switching to a full electric vehicle (EV) or choosing a highly efficient hybrid model.
How Does Euro 6e-bis Change Emissions Testing?
The Euro 6e-bis standard is not about setting new, lower pollution limits (like for NOx or soot).
Instead, it focuses on making the official CO₂ figures for PHEVs more realistic by changing how they are tested.
The main changes here, for instance, are:
Extended Driving Distance
The total simulated driving distance for the emissions test has been significantly increased from around 497 miles to 1,367 miles.
Over this longer test cycle, a PHEV must run its combustion engine more often, resulting in a higher, more accurate CO₂ figure.
Revised Utility Factor (UF)
A new "Utility Factor" is also being applied.
This factor determines the balance between electric-only driving and petrol/diesel use during the test.
The new UF has been designed to better reflect real-world driving, where drivers don't always charge their PHEVs fully or use the electric mode as much as originally assumed in the old tests.
This shift also pushes the official CO₂ rating up.
What Does This Mean for Company Car Drivers and Fleets?
The main impact here will be a significant rise in the official CO₂ figure, which directly translates into a higher BiK percentage and increased costs for both the driver and the business as a direct result.
For instance, to give you an understanding of how this could impact you, here are some hypothetical examples demonstrating this.
Specific Hypothetical Examples
| Vehicle Status | Old CO₂ (Euro 6d) | New CO₂ (Euro 6e-bis) | BiK Tax Rate (Example) | Impact |
|---|---|---|---|---|
| Popular PHEV Model | 30 g/km | 60 g/km | 9% to 18% | Monthly tax bill for a 40% taxpayer could double. |
| Premium PHEV Model | 45 g/km | 95 g/km | 12% to 24% | Tripling of the monthly tax liability. |
Impact on Fleets and Business Costs
Due to the changes, there are a number of impacts that will fall on businesses. For instance, here you will have:
Higher Costs
The BiK increase will mean a higher cost for the employee.
For the employer, the higher taxable value of the car also leads to an increase in Class 1A National Insurance Contributions (NICs).
Policy Compliance
Many company car policies have a maximum CO₂ limit (e.g., 75g/km or 50g/km).
Consequently, PHEVs that previously qualified for a low tax band or for salary sacrifice schemes may now fall outside these rules, requiring an urgent review of fleet policies.
Increased EV Shift
The change further highlights the financial benefit of full electric vehicles (EVs), which continue to have the lowest BiK rates (currently 3% for 2025/26).
The Corporate Finance Impact With Capital Allowances and Leasing
Here as the rise in official CO₂ figures for PHEVs will affect more than just the driver's tax bill; it will also significantly impact how businesses account for and lease their fleet vehicles as well.
For instance, here are things you need to factor in will include:
Capital Allowances and Purchased Vehicles
For businesses that purchase vehicles outright (or through Hire Purchase), the tax relief is claimed through Capital Allowances (Writing Down Allowances).
The rate you can claim depends on the car's CO₂ emissions:
- Cars with 1–50g/km CO₂ are currently eligible for the Main Rate (18% per year).
- Cars with over 50g/km CO₂ fall into the Special Rate pool (6% per year).
The Euro 6e-bis standard will push many popular PHEV models from the faster 18% Main Rate pool down to the slower 6% Special Rate pool, significantly slowing the rate at which businesses can claim tax relief.
As a result, this will directly affect the Total Cost of Ownership (TCO) by a good margin.
Leasing Disallowances and Leasing Companies
For vehicles acquired through a finance lease, the rules for claiming the full rental cost are also linked to the 50g/km threshold.
If a vehicle emits over 50g/km CO₂, your company is currently disallowed from claiming 15% of the rental cost against taxable profit.
The higher Euro 6e-bis CO₂ figures, though, mean that many PHEVs will breach this critical 50g/km limit, increasing your leasing costs as a result, and creating a pricing challenge for fleet operators as a result of this.
Action Points for Fleets, Drivers, and Businesses
Preparation is key to managing costs and compliance through this transition period.
Order Timing
If you want a PHEV under the current, lower tax rules, ensure it is ordered and registered before April 2026 to lock in the better rates here.
Policy Review and TCO Analysis
Fleet managers must urgently review their company car policies and eligibility criteria, adjusting the maximum CO₂ limit to account for the new, higher Euro 6e-bis figures. Conduct a full Total Cost of Ownership (TCO) analysis that includes the impact on BiK, NICs, and capital allowance claims.
Driver Communication and Flexibility
Inform drivers about the tax implications of PHEVs registered after April 2026, comparing the rising cost of a new PHEV against the continued low BiK rates for full EVs. For drivers reliant on operational flexibility, be transparent about the cost premium for that convenience.
Focus on EVs and Charging Infrastructure
Accelerate the transition to EV where operational needs allow, as these remain the most tax-efficient option. Simultaneously, invest in improving charging infrastructure at depots and support for home charging to overcome driver adoption barriers.
Operational Reality and Future Market Positioning
As you can see, the tax changes really are accelerating the industry's shift toward full electrification, but fleet managers must balance tax savings with the practical needs of their drivers, now more than ever.
As a result, areas you need to factor in here should be focused around:
PHEV Operational Flexibility vs. Charging Infrastructure
PHEVs have historically offered you a great compromise: low tax with the operational flexibility of a petrol engine when an EV charging infrastructure is unavailable.
However, for long-distance drivers or those without home charging, this flexibility is more than just needed.
As a result, as the tax benefits are reduced, fleets will be forced into the stark choice between:
- Higher tax costs for the PHEV's flexibility.
- Lower tax costs for a full EV, accepting the current limitations of public charging and range anxiety for some routes, and for some employees who may not have full home charging capabilities.
Market Positioning and Residual Values
In response to the Euro 6e-bis challenge, manufacturers (OEMs) will have to redefine the market positioning of their PHEV models in a different way as well.
For instance, if these vehicles are no longer seen as a low-tax solution, their appeal will diminish as a result, potentially leading to a sharp drop in residual values (RVs) when the vehicles are sold second-hand.
Fleet managers must also account for this volatility, as TCO relies heavily on predicted RVs.
If you are worried about this as one of the leading leasing companies, moving to leasing may now be the best option for you.
Future Standards Incoming
You should be aware that the Euro 6e-bis standard is part of a continuing trend towards more accurate emissions testing.
Euro 6e-bis-FCM standard
The next phase is the Euro 6e-bis-FCM standard scheduled for implementation in 2027.
This will then introduce even more rigorous testing, with the distance increasing again (to over 2,600 miles), which is expected to result in a further increase in reported CO₂ emissions for PHEVs.
Government Policies and The Industry Response
The Euro 6e-bis easement is a direct UK government policy response to the new, more stringent Euro 6e-bis emissions testing standard.
For instance, here the government's plan is specifically designed to mitigate the significant financial impact of the new standard on PHEV company car tax (Benefit-in-Kind, or BiK).
Government Policies (Treasury Easement)
Here, the Government policies are based on:
Mandate and Timeline
The UK government plans to mandate the Euro 6e-bis standard in Great Britain from April 2026 for new registrations.
This follows its adoption in Northern Ireland (and the wider EU) from January 2025.
The Easement (BiK Mitigation)
To prevent a sharp increase in company car tax, the Treasury is introducing a temporary easement.
This measure will then run for two years, from April 2026 to April 2028, with retrospective application to Northern Ireland from January 2025 to ensure UK-wide consistency.
Purpose
The easement aims to "soften the increase in BiK rates" during this transition period.
However, without this government intervention, the projected rise in CO₂ emissions data (e.g., a jump from 10g/km to 30–40g/km) could push a driver's BiK rate from 9% to as high as 24% for the same vehicle.
Automotive Industry Response (OEM Compliance Strategies)
The automotive industry is responding in a number of ways, including, for instance:
Compliance and Retesting
The new Euro 6e-bis standard requires the automotive industry (Original Equipment Manufacturers or OEMs) to re-homologate all existing PHEV models by the end of 2025.
This involves submitting their vehicles to the revised, more rigorous RDE tests, which include a longer simulated distance (up to 1,367 miles) and a new, more realistic Utility Factor.
Fleet Strategy Adjustment
Manufacturer fleet sales teams and the wider industry are also actively advising fleet managers on the main timing of these vehicle registrations.
For instance, PHEVs registered before April 2026 will still retain the existing, lower emissions ratings.
However, vehicles registered after this date will then be subject to the higher CO₂ figures, making the financial impact of the new emissions testing a key factor in procurement and fleet eligibility policies.
Future Standards
The industry is already preparing for the next phase, the Euro 6e-bis-FCM standard, scheduled for 2027.
This stage will then involve even longer testing distances (up to 2,647 miles), which will likely result in a further increase in reported CO₂ emissions and, as a result, will necessitate continuous compliance and fleet strategy adjustments due to this as well.
What Does This Mean for Fleets and Drivers?
For fleets and company car drivers, the timing of vehicle registrations will be critical.
Any plug-in hybrid registered before April 2026 will continue to benefit from the existing, lower emissions ratings and therefore lower Benefit-in-Kind (BiK) tax rates.
However, vehicles registered after the new Euro 6e-bis standard takes effect could face sharply higher official CO₂ figures, pushing them into more expensive tax bands.
This shift means higher future costs for many drivers and employers. Without the government’s temporary easement, some PHEV models could see BiK rates more than double, significantly increasing the cost of running these vehicles as company cars.
The key for fleet managers will be preparation. Reviewing upcoming vehicle orders, adjusting procurement timelines, and reassessing fleet policies will help businesses remain cost-effective and compliant.
By acting early, both fleets and drivers can minimise exposure to higher tax bills and ensure their vehicle choices remain financially sustainable.
