Policy paper

Plug-in hybrid electric vehicles — benefits in kind easement

Published 26 November 2025

Who is likely to be affected

Businesses and employers who provide plug-in hybrid electric vehicle (PHEV) company cars and employees provided with PHEV company cars that are made available for private use.

General description of the measure

As announced in Budget 2025, the government is introducing a temporary easement to mitigate the increasing benefit in kind tax liabilities of PHEV company cars due to new emission standards. The easement will apply retrospectively from 1 January 2025 to 5 April 2028. Transitional arrangements will apply to certain PHEVs until 5 April 2031.

When an employer makes a company car available for private use there is a benefit in kind Income Tax charge to the employee, and an employer National Insurance contributions charge. The charge is calculated using CO2 emissions and, where relevant, the electric mileage range of the vehicle.

New European Union (EU) and United Nations (UN) emission standards introduced from 1 January 2025 observe higher CO2 emissions for PHEVs than previous standards. The EU Euro 6e standard applies in Northern Ireland, and the equivalent UN standard currently applies UK-wide. This change increases the car benefit charge due on PHEV company cars.

During the easement period, the CO2 emission figure for certain PHEVs will be deemed to be a nominal figure for the purposes of the benefit in kind charge rather than the CO2 figure on the registration document. This will have the effect of reducing the value of the benefit-in-kind charge that applies.

Policy objective

This measure aims to ensure consistency in the tax treatment of company cars across the United Kingdom by mitigating the impact of updated emission standards on PHEVs.

Background to the measure

The government published its intention to mitigate the impacts of the new emission standards on 21 July 2025 through a written ministerial statement. The written ministerial statement also committed to extend the easement retroactively in Northern Ireland to 1 January 2025, where the new emission standard already applies.

Detailed proposal

Operative date

This measure will have effect retrospectively from 1 January 2025 to 5 April 2028. Anyone accessing an eligible PHEV company car on or before 5 April 2028 will remain eligible for the easement until the earlier of variation or renewal of the arrangement or 5 April 2031.

Current law

The current law is included in Chapter 6 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA).

Sections 121 to 148 provide for calculating the cash equivalent of the benefit of a vehicle which is made available for private use. In broad terms, this depends on the list price of the car plus taxable accessories, multiplied by the level of CO2 emissions the car produces, which is expressed as the appropriate percentage.

Sections 136 to 138 provide for determining the CO2 emission figure for the car.

Proposed revisions

Legislation will be introduced in Finance Bill 2025-26 to make the following changes.

Section 138A will be inserted into Chapter 6 and provides for the vehicles CO2 emission figure to be deemed a nominal value of 1 where it meets conditions set out in 138A(1). The conditions that a vehicle must satisfy to be eligible for the easement are, the:

• vehicle was first registered on or after 1 January 2025
• vehicle’s CO2 emissions figure is 51 or more
• vehicle was registered under any emission standard other than Euro 6d-ISC-FCM or Euro 6e
• car’s electric range figure is 1 or more

Summary of impacts

Exchequer impact of benefit in kind tax easement (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
—	+35	+60	+75	+80	+85

The costing for this measure has been incorporated, alongside other measures, into the overall ‘Plug-in hybrid electric vehicle (PHEV) emissions regulatory standard changes and benefit in kind easement’ costing. More details can be found in Table 4.1 of Budget 2025.

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will impact an estimated 150,000 employees who have private use of a PHEV through their employer. The measure will prevent increased costs for these individuals.

Employees affected by the retrospective element of the easement will be able to claim a repayment made on the system used to report the benefit through their employer.

This measure is not expected to impact family formation, stability or breakdown.

It is expected that some employees provided with a company car by their employer will switch to PHEVs from petrol or diesel cars during the easement period.  

This measure is expected overall to have no impact on individual’s experience of dealing with HMRC as the change will not result in them having direct contact with HMRC as their employers will report the benefit.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. This measure is expected to impact on individuals who are provided a PHEV company car by their employer. HMRC does not currently hold data on the protected characteristics of individuals who are provided a PHEV vehicle and so cannot make an assessment of the impacts on those with shared protected characteristics, however individuals who are provided a company car was used as a proxy for this population.

Those aged 35-64 (79%) are estimated to be overrepresented in the population who receive a company car compared to their prevalence in the UK adult population (50%). Males are also estimated to be overrepresented (79%) compared to the UK adult population (50%), as are those from a White – English, Welsh, Scottish, Northern Irish or British ethnic background (88%, compared to 82% in the UK adult population).

Where data was available no other protected group was estimated to be overrepresented in the population who receive a company car from their employer.

Administrative impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses which provide affected PHEVs as taxable benefits in kind for their employees. An estimated 100,000 businesses provide company cars of various kinds to their employees, a proportion of those will be affected PHEVs. Affected employers will need to report the nominal CO2 set out in legislation rather than the CO2 figure listed on the vehicle’s registration document.

One-off costs could include employers and employees needing to familiarise themselves with the changes through guidance and record the changes through payroll. It is not anticipated there will be any ongoing costs since most employers will already operate a payroll and provide benefits.

Customer experience is expected overall to have no impact on businesses’ experience of dealing with HMRC as this does not change any processes or tax admin obligations

This measure is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

Our current understanding is the operational impacts on HMRC are expected to be relatively small and will be dealt with as part of business as usual.

Other impacts

This measure has a behavioural impact by incentivising businesses to purchase PHEV company cars to support the government’s wider objective of reducing greenhouse gas emissions to net zero by 2050.

Other impacts have been considered, and none have been identified.

Monitoring and evaluation

The policy will be kept under review through regular communication with taxpayer groups affected by the measure.

Further advice

If you have any questions about this change, email the employment benefit and expenses policy team at policyemploymentbenefitsexpenses@hmrc.gov.uk.