The Treasury has revealed measures to shield plug-in hybrid vehicles from new European emissions testing standards that would substantially raise tax bills for businesses.

James Murray, the Treasury secretary, has announced a two-year "easement" beginning in April 2026 that will permit car manufacturers to continue using more favourable carbon dioxide calculations based on older testing methods.

The intervention comes as the European Commission's Euro 6e-bis emission standard threatens to dramatically increase the official CO2 figures for plug-in hybrids.

This could potentially undermine the tax advantages that have made these vehicles attractive to company car drivers and fleet buyers, who represent more than 80 per cent of new plug-in hybrid sales in the UK.

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The new European testing regime, which became mandatory for new vehicle launches in January 2025, employs a revised methodology that assumes plug-in hybrids operate on battery power for a smaller proportion of their total mileage, Autocar reported.

Research by the International Council for Clean Transportation indicates that under these stricter calculations, a plug-in hybrid currently rated at 45 grams of CO2 per kilometre could see its official emissions figure rise to 96g/km.

There could also be a further increase to 122g/km anticipated when additional adjustments take effect in 2027.

These changes would push many plug-in hybrids above the crucial 50g/km threshold that currently qualifies them for reduced company car tax rates and enhanced corporation tax relief, where businesses can offset the full cost of leases or 18 per cent of purchase prices against pre-tax profits.

Studies examining actual driving patterns have revealed that plug-in hybrids produce approximately three and a half times more carbon dioxide during real-world use compared to their performance in official testing conditions.

This significant discrepancy between laboratory results and everyday driving has prompted European regulators to implement the revised testing methodology, which provides what officials consider a more accurate representation of these vehicles' environmental impact.

The adjustments reflect growing concerns that current testing procedures fail to capture how drivers actually use plug-in hybrids, with many relying more heavily on petrol engines than the electric motors that justify their preferential tax treatment.

Without any modifications to the vehicles themselves, the new calculations would result in substantially higher emissions ratings that better align with observed on-road performance.

The UK's proposed solution will enable manufacturers to maintain a competitive advantage by publishing carbon dioxide figures derived from the pre-2025 Euro 6d testing standard, even as other European markets adopt the stricter methodology.

During the easement period, companies can either rely on existing type approval data or convert the new Euro 6e-bis results back to their Euro 6d equivalent.

This will ensure some models sold in Britain will display lower emissions ratings than identical vehicles in continental Europe.

This temporary reprieve maintains crucial tax incentives that have driven plug-in hybrid adoption among business users and fleet operators.

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Experts are calling for urgent intervention ahead of the April 2026 deadline for new fleet vehicles

Fleet industry representatives have expressed relief at the government's intervention, though concerns remain about the complexity of managing different emissions figures across markets.

Paul Hollick, chair of the Association of Fleet Professionals, noted that plug-in hybrids already face scheduled tax increases from April 2028, when all vehicles emitting between one and 50g/km will be consolidated into a single 18 per cent tax band rather than multiple rates based on electric range.

Hollick warned that a decision should be made by April 2026, saying: "Our view is that it would be unfair if tax on company cars was increased beyond the levels announced in the Budget."

Thomas McLennan from the British Vehicle Rental and Leasing Association also stated that there was uncertainty around testing regimes creates confusion for businesses, though he acknowledged plug-in hybrids will face higher first-year vehicle excise duty regardless of the easement.