What tax benefits do hybrid vehicles offer businesses?
Hybrid vehicles are becoming an increasingly attractive option for businesses.
With changes in company car tax bands and the environmental benefits they offer, hybrids are a step towards sustainability and a smart financial decision.
Understanding company car tax
Company car tax, or Benefit in Kind (BiK), is a significant factor when considering a hybrid for your business fleet.
The tax is calculated based on the car’s ‘taxable value’, which is a percentage of its list price (known as the P11d value). This percentage increases for cars with higher CO2 emissions.
Since April 2020, the tax bands have been overhauled, favouring plug-in hybrids due to their lower CO2 emissions and longer electric range.
For instance, plug-in hybrids emitting less than 50g/km CO2 fall into ultra-low tax bands, based on their electric range. Most are taxed at 8 per cent or 12 per cent of their list price, compared to 25 per cent for a ‘self-charging’ hybrid or diesel car.
BiK for drivers
The driver’s benefit in kind is a percentage of the taxable value, based on their Income Tax rate.
In England, Wales, and Northern Ireland, there are three tiers (20 per cent, 40 per cent, and 45 per cent), while Scotland has five bands between 19 per cent and 46 per cent.
A driver paying 20 per cent Income Tax would be liable for 20 per cent of the taxable value each year. This is typically split into 12 monthly instalments and collected from their monthly wages.
Incentives for businesses
While Economic Capital Allowances (ECAs) can no longer be claimed on hybrids, businesses can still benefit from other incentives.
Employers pay Class 1A National Insurance Contributions (NICs) for providing workplace perks. For cars, this is a flat rate of 13.8 per cent of the vehicle’s taxable value. The CO2-weighted system means lower NICs for hybrids, especially plug-ins.
Hybrids also qualify for a £10 reduction in both the first year and annual road tax payments. However, they attract the luxury car levy if the list price is £40,000 or more.
Businesses can deduct 100 per cent of the monthly lease cost or 18 per cent of the purchase cost against pre-tax profits for vehicles emitting 50g/km CO2 or less.
Above this threshold, the deduction is reduced to 85 per cent and 6 per cent respectively.
Hybrids offer compelling financial incentives for businesses. With lower BiK rates, reduced NICs, and tax deductions, they present a cost-effective option for company fleets.
Their environmental benefits are also a key factor, as business owners look towards a more sustainable future.
If you would like more information about the tax savings that hybrid and other electric vehicles can offer your business, then please contact our team today.
