Salary sacrifice threshold warning from emissions testing change

Employers are being warned that some plug-in hybrid electric vehicles (PHEVs) ordered through salary sacrifice schemes may not end up qualifying for the benefit.

Salary sacrifice enables drivers to lease vehicles through their employer and pay for them with their pre-tax income as long as the vehicle emits 75g/km of CO₂ or less.

However, a new stricter emissions test for PHEVs is expected to more than double or even treble current CO₂ values for some cars, pushing them above the salary sacrifice threshold, despite potentially being within scope when the vehicle was ordered.

In the EU, the new Euro 6e-bis standard has applied to all newly launched PHEVs from January 1, 2025, and to all models on sale from December 31.

It means all existing PHEV models will have to be re-homologated before the end of 2025.

The Department for Transport (DfT) plans to launch a consultation later this year on proposals to mandate the Euro 6e-bis emission standard in Great Britain, which would apply to all new car and van registrations from 2026.

The current emission standard for cars and vans in Great Britain is Euro 6d.

HM Treasury explained that there will be no retrospective changes to CO₂ emissions values for vehicles already registered. 

Subject to the DfT consultation, it added, any changes would apply to new vehicles registered from January 1, 2026.

Harvey Perkins, a tax specialist at HRUX, said: “It’s not dissimilar to issues we’ve had in the past, when we went from NEDC to WLTP, and then when we had the step between the calculated WLTP and the measured WLTP. 

“Both those times, there was quite a lot of disruption in the industry, because people need to know what the CO₂ numbers are and at this point in time, it’s not very clear.” 

Appearing on a tax webinar organised by the Association of Fleet Professional (AFP), he explained: “The implication is that towards the latter end of this calendar year, we will see CO2 values differing on the certificate of conformity from what maybe you expected when you ordered the vehicle. 

“If it goes over 50g/km, then you will move on the tax table, so you will have to pay more company car tax. 

“The big issue is if you go over 75g/km, because if you go over 75 grammes, salary sacrifice no longer applies to that vehicle. You can still use it, but you won’t get the national insurance benefits of salary sacrifice.”

The DfT has provided indicative examples of the potential CO₂ increases. For instance, a PHEV with a current CO₂ figure of 10g/km and equivalent all electric range of 80km (50 miles) could increase to 30g/km. 

It also suggests that a PHEV with a current CO₂ figure of 10g/km and an equivalent all electric range of 120km (75 miles) could increase to 40g/km, and a PHEV with a current CO₂ figure of 30g/km and equivalent all electric range of 40km (25 miles) could increase to 60g/km. 

Its final example is a PHEV with a current CO₂ figure of 30g/km and equivalent all-electric range of 80km (50 miles), which it says could increase to 90g/km.