The plug-in hybrid as a company car is on borrowed time. Not because anyone has banned them. The way they're tested has already changed, and the UK tax system is starting to catch up. For most directors signing a 3 or 4 year business car lease in 2026, this matters more than it looks.
Here's what's happening, why the old default is shifting, and what to think about before you order your next company car.
Why the PHEV Stopped Being the Safe Choice
For most of the last decade, the plug-in hybrid was the company car answer that pleased everyone. It gave directors a nice car. It gave finance directors a friendly Benefit-in-Kind banding. It gave drivers worried about EV range a petrol engine sitting behind the battery. The middle ground felt like a genuinely sensible place to stand.
That's changing. Quietly, structurally, and largely without much fanfare in the mainstream business press.
The driver is a new emissions testing standard called Euro 6e-bis. The standard itself isn't dramatic. It just measures emissions over a much longer real-world driving cycle than the test it replaces. The old test ran for around 500 miles. The new one runs for more than 1,300 miles, and a further tightening in 2027 stretches that out again.
PHEVs perform very well over short distances when their battery is fresh. Over longer distances, when the battery has discharged and the petrol engine is doing the work, they look much more like a regular petrol car. The old test flattered them. The new test does not.
The Short Version
Euro 6e-bis emissions testing is making official CO2 figures for plug-in hybrids rise sharply. Because Benefit-in-Kind tax is calculated from those figures, PHEV company car tax is heading upwards.
A Government easement runs from April 2026 to April 2028 to soften the immediate hit. Most leases signed in 2026 finish on the other side of that easement.
If you're spec'ing a company car this year, the tax position you start on isn't the tax position you finish on.
What This Does to Your Company Car Tax
Benefit-in-Kind tax for company cars is calculated from official CO2 figures. When those figures rise, the BIK band rises with them. Under Euro 6e-bis, official CO2 figures for many plug-in hybrids are expected to rise significantly, in some cases doubling or tripling compared to their previous numbers.
The Treasury has put a temporary easement in place running from April 2026 to April 2028 to soften the immediate hit. That's helpful in the short term. It is not a long-term answer.
Two things follow from that.
First, leases signed in 2026 typically run for three or four years. That means a new PHEV company car ordered today will still be on your driveway, and on your P11D, when the easement ends. The tax position you sign up for at the start of the lease is not the tax position you finish on.
Second, the direction of travel is clearly set. There's a further tightening of testing in 2027, and the gap between PHEV and fully electric company car BIK bandings was already widening even before Euro 6e-bis. The PHEV's middle-ground positioning relied on being closer to the EV end of the tax scale than the petrol end. That gap is now closing in the wrong direction.
What to Think About If You're Spec'ing a Car This Year
This isn't a piece telling you to switch to electric. EVs have their own considerations. Charging, range, residual values, the suitability of your driving pattern. Plenty of directors will look at all of that and decide a petrol or diesel still makes sense for them, especially if they're paying for their own car rather than running it through the business.
What we'd suggest is that the PHEV default deserves a fresh look before you sign anything in 2026. A few questions worth putting on the table:
- What does the BIK position on this exact model look like across the full lease term, not just year one?
- If the easement ends in 2028, what's the realistic tax exposure for year three and four of the contract?
- Is the electric range on the spec sheet enough to actually run the car as an EV for most journeys? If the answer is "not really", the PHEV's whole tax argument has been hanging on something the new test exposes.
- Have you compared the same monthly budget against a like-for-like fully electric option? On a Total Cost of Ownership basis, the gap is often smaller than the headline numbers suggest.
- Have you compared personal versus business leasing for the same car? The tax efficiency picture changes meaningfully depending on the route.
Your accountant is the right person to put real numbers next to those questions. Our job is to make sure the car options on the table actually fit the answers. If you're new to leasing and want the basics before getting into the tax detail, our guide on how car leasing works covers the foundations in plain English.
Considering salary sacrifice?
Fully electric cars work particularly well through a salary sacrifice car scheme because of the low EV Benefit-in-Kind rate. If a PHEV looked attractive on tax grounds, it's worth modelling a like-for-like EV through salary sacrifice before committing.
The Wider Point
The leasing industry isn't great at flagging changes that affect customers but don't directly affect deal flow. PHEVs have been the most-quoted category of company car for years. The brokers, manufacturers and finance providers have built their pipelines around them. That's why a structural shift like this can move further than you'd expect before it gets talked about openly.
None of this is urgent. Nobody is going to ring you on April 6th 2028 to say your car is now taxed differently. But if you're signing a multi-year agreement this year, the worth-knowing piece is that the back end of your contract sits inside a different tax landscape from the front.
The middle ground is quietly disappearing. It's worth noticing before you order.
What Else Should You Look At?
If you're rethinking your next company car, a few places worth starting:
- Browse the latest electric car lease deals to see what a like-for-like EV option looks like on monthly cost.
- Read our guide to electric car leasing for businesses for the company-specific angle.
- Compare business car lease deals across all fuel types.
- Understand the mechanics with our car lease finance guide.
Thinking About Your Next Company Car?
We're happy to talk through the like-for-like options on a specific car you're considering, whether that's PHEV, EV or otherwise, and give you a clear monthly cost comparison to take to your accountant. No pressure, no quote-stack pitch.
Browse the latest car lease deals or talk to the team.
LetsLease is an independent UK car leasing broker. This article is general information, not tax advice. Always speak to a qualified accountant about your specific circumstances. Lease agreements subject to status and approval. Terms apply.
Euro 6e-bis is a new emissions testing standard that measures vehicle CO2 emissions over a much longer real-world driving cycle than the test it replaces. The old test ran for around 500 miles. The new one runs for more than 1,300 miles. The cars themselves are unchanged, but the test is more honest about how they perform in everyday use, especially for plug-in hybrids.
The UK Government has confirmed Euro 6e-bis will become mandatory in Great Britain from April 2026 for all new car and van registrations. It already applies in Northern Ireland and across the EU. A further tightening, known as Euro 6e-bis-FCM, follows in 2027 with an even longer test cycle.
Benefit-in-Kind (BIK) tax is calculated from a car's official CO2 figure. Because Euro 6e-bis raises those figures, sometimes doubling or tripling them, many plug-in hybrids will move into higher BIK bands. The vehicle hasn't changed, but its tax position has.
The Treasury has introduced a temporary BIK easement running from April 2026 to April 2028. It softens the immediate tax hit for plug-in hybrid company car drivers during the transition. The easement doesn't reverse the change, it delays the impact. Once it ends in April 2028, the higher BIK position applies in full.
Plug-in hybrids registered before April 2026 keep their existing CO2 ratings and BIK position for the duration of the current lease. The change applies to new registrations from April 2026 onwards. If you're mid-contract on a PHEV today, your monthly tax position doesn't change. The conversation is about what to order next.
Possibly, but it depends on the car and your circumstances. A pre-April 2026 PHEV registration keeps the older CO2 figures and the more favourable BIK position for the contract. That can make sense for a 2 or 3 year lease where you'll hand the car back before the cliff matters. For a 4 year lease, the maths is tighter. Worth modelling both routes with your accountant before deciding.
For company car tax, fully electric cars sit in a much more stable BIK position with rates legislated through to 2029/30. The gap between EV and PHEV BIK was widening even before Euro 6e-bis. Whether an EV is right for you depends on charging access, typical mileage and the cars you're considering. Take a look at our electric car lease deals or our guide to electric car leasing for businesses to compare like-for-like.
Yes. Higher official CO2 figures don't just affect Benefit-in-Kind. They also affect Vehicle Excise Duty, the lease rental restriction for businesses, and the qualifying threshold for 100% corporation tax relief on company-owned vehicles. The easement softens the BIK impact specifically, but it doesn't cover VED or capital allowance treatment.
Salary sacrifice schemes work best with cars that have low BIK rates. As PHEV BIK bands rise from 2028 onwards, salary sacrifice on a plug-in hybrid becomes less efficient than it has been. Fully electric cars remain the strongest option for salary sacrifice schemes because of the much lower EV BIK rate.
Your accountant is the right person to put exact tax numbers next to your specific circumstances. On the car side, our team can quote a like-for-like PHEV, EV and ICE option on the same monthly budget and the same term, so you can see the full picture before making a decision. Talk to the LetsLease team for a no-pressure comparison.