Benefit in kind tax implications of new testing procedure for PHEVs

Company Fleet  Driver Guides  Low Emission Vehicles 

Companies ordering plug-in hybrid vehicles (PHEVs) for their drivers need to be aware that a new method of assessing the CO2 emissions has been introduced.

The changes could alter the tax position of new cars ordered, although there are no retrospective changes to cars that have been delivered.

Currently the CO2 emissions of PHEVs are measured using something called the Utility Factor. This Utility Factor assumes the share of driving done in electric only mode and when using the petrol or diesel engine.

However, recent research has found that the Utility Factor overestimates how often drivers charge their PHEVs.

A European Commission report on a sample of 600,000 cars found that CO2 emissions from petrol and diesel cars was 20% higher than the official values under WLTP tests used for official measurements of vehicle CO2 emissions.

What's more, the same report found that the real-world CO2 emissions of PHEVs were on average 3.5 times higher than the laboratory values.

Following this research, the official Utility Factor is being updated to reflect the Commission’s findings and will apply to new models brought out by manufacturers in 2025 and all new vehicle registrations in 2026.

The British Vehicle Rental & Leasing Association also says that some new models introduced to Great Britain may be already affected because car makers can choose between the old and new Utility Factor, so it’s important to clarify with the manufacturer to avoid confusion and potentially excess company car tax.

What do the changes look like?

The Department for Transport has provided a few indicative examples to give an idea of the potential CO2 increases. These are:

• A PHEV with a current CO2 figure of 10g/km and equivalent all electric range of 50 miles could increase to ~30g/km
  
  
• A PHEV with a current CO2 figure of 10g/km and equivalent all electric range of 75 miles could increase to ~40g/km
  
  
• A PHEV with a current CO2 figure of 30g/km and equivalent all electric range of 25 miles could increase to ~60g/km
  
  
• A PHEV with a current CO2 figure of 30g/km and equivalent all electric range of 50 miles could increase to ~90g/km
  
  

“It’s important that companies and drivers appreciate the changes that are happening,” says Operations Director of Gateway2Lease Rob Marshall. “The decision has been further complicated by the recent changes to benefit in kind taxation of PHEVs, which has seen their percentages increase depending on the distance travelled in zero emission mode.”

Drivers and companies considering a new PHEV should contact Gateway2Lease leasing executives to discuss their position and the car they wish to lease to ensure they have all the facts before ordering, Marshall added. For the changes to the benefit in kind taxation system affecting PHEVs, please see our tax table here.

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