Chancellor Rachel Reeves has confirmed a £135 charge for drivers under updated Vehicle Excise Duty (VED) rules. The new first-year VED rate applies to plug-in hybrid vehicles (PHEVs) that emit between 51g/km and 75g/km of CO₂.
Details of the New Charge
The Labour Party Chancellor introduced the £135 first-year VED rate for PHEVs in the 51-75g/km CO₂ bracket. This bracket previously had a lower rate, but it has now jumped to £135. All VED rates continue to rise incrementally in line with the Retail Price Index (RPI) to maintain their real-terms value.
Changes in CO₂ Testing Standards
The method for evaluating CO₂ output has transitioned to Euro 6e-bis standards, which require longer and more rigorous testing. For PHEVs, the testing distance has increased from 497 miles to 1,367 miles, incorporating more combustion-only (battery-depleted) running. As a result, stated CO₂ figures are higher, and many PHEVs have been reclassified into higher-emission brackets, leading to higher annual tax bills.
For example, the BMW M5 moves from the 1-50g/km band to the 101-109g/km band, and the Bentley Continental GT moves from the 1-50g/km band to the 91-100g/km band. Most PHEVs will jump one or two bands due to the new tests.
Future Pay-Per-Mile System
The government has confirmed a new pay-per-mile eVED (Electric Vehicle Excise Duty) road tax system scheduled to launch in April 2028. This will charge electric car drivers 3p per mile and PHEV drivers 1.5p per mile.
Company Car Easement
An easement has been granted for company car buyers. All PHEVs bought as company cars between 1 January 2025 and 5 April 2028 that are reclassified to a 50g/km+ figure after updated testing will be kept in the lowest class for benefit-in-kind (BIK) purposes. This will save buyers who purchased PHEVs in good faith from a sudden rise in BIK tax costs for the time being.
