Hybrid company cars: What do you need to know?

With the sale of new petrol and diesel cars set to cease in 2030 and rising fuel costs, the demand for hybrid and electric cars is on the rise.

Hybrid cars offer several benefits, such as lower emissions and reduced fuel consumption.

But did you know hybrid cars can also provide tax incentives?

Benefit in Kind

A taxable advantage known as a Benefit in Kind (BIK) will be incurred if you operate as a limited company and your staff utilise their company car for personal use.

The BIK tax can be significantly influenced by the vehicle you use, as not all cars are taxed equally.

Several factors play a role in determining the tax rate, including the car’s official emission figures, compliance with emission standards, the car’s list price, fuel type, and in the case of a hybrid or electric vehicle, its range.

The UK Government establishes BIK rates and currently, BIK rates span from zero per cent to 37 per cent. These rates are typically adjusted annually.

BIK tax rates are designed to incentivise the use of environmentally friendly vehicles, with lower emission cars attracting lower tax rates, such as hybrid and electric vehicles.

Employees driving a hybrid company car can save hundreds of pounds in tax.

The current BIK rate for fully electric vehicles is two per cent and these rates will remain in effect until at least April 2025 for vehicles with zero carbon emissions, offering significant tax savings to company car drivers.

Ultra-low-emission vehicles, specifically plug-in hybrid electric vehicles (PHEVs) also enjoy attractive BIK rates.

PHEVs BIK tax rates range from two per cent to 14 per cent based on CO2 emissions (below 50g/km) and the vehicle’s electric-only range.

Plug-in hybrids present a competitive tax option for drivers who may not yet be ready for a fully electric vehicle.

The table below shows the current and future tax bands based on the CO2 emissions of your vehicle.

Cars registered from 6 April 2020:

 

Vehicle CO2 Emissions (G/KM)	Electric range (Miles)	2023/24 (%)	2024/25 (%)	2025/26 (%)	2026/27 (%)
0	N/A	2	2	3	4
1-50	> 130	2	2	3	4
1-50	70 – 129	5	5	6	7
1-50	40 – 69	8	8	9	10
1-50	30 – 39	12	12	13	14
1-50	< 30	14	14	15	16

 

Examples of different hybrid vehicles

• Ford Kuga PHEV: 23 – 25 g/km, an overall range of 39 – 40 miles.
• Porsche Cayenne E-Hybrid: 42g – 33 g/km, an overall range of 41 – 46 miles.
• Volvo XC40 T5: 47 – 49 g/km, an overall range of 28 miles.
• Range Rover Sport P400e: 71 g/km, an overall range of 31.6 miles.

Please note the numbers above are estimates and depend on the specifications of the vehicle.

Enhanced Capital Allowance (ECA)

The ECA scheme allows businesses to claim 100 per cent first-year capital allowances on investments in certain energy-saving technologies, including low-emission vehicles.

For hybrid cars to be eligible, they must meet the criteria outlined by the Office for Low Emission Vehicles (OLEV) and have CO2 emissions not exceeding 50 g/km.

By taking advantage of the ECA, businesses can lower their taxable profits, effectively reducing their Corporation Tax liability.

Reduced Vehicle Excise Duty (VED)

VED, also known as road tax, is another area where businesses can save with hybrid company cars.

VED rates are determined by the car’s CO2 emissions and hybrid vehicles generally have lower emissions compared to conventional vehicles.

The VED savings can be significant for businesses, especially when operating a large fleet of vehicles

Lower running costs

Beyond tax savings, hybrid company cars can offer lower running costs. They are generally more fuel-efficient than traditional petrol or diesel vehicles which can lead to substantial savings on fuel expenses.

Additionally, hybrid vehicles typically have lower maintenance costs due to fewer mechanical components and reduced wear and tear.

Opting for a hybrid vehicle in a company fleet is a smart choice that contributes to a greener future while offering tangible benefits to businesses and their employees.

Considering switching to a hybrid company car? Contact us for advice.