Hybrid company cars are becoming increasingly popular due to the impending ban on new petrol and diesel cars in 2030 and the rising cost of fuel.
These cars offer numerous benefits, including lower emissions and reduced fuel consumption.
However, there are additional factors to consider when it comes to hybrid vehicles, particularly in relation to tax incentives.
Benefit in Kind
One important aspect to understand is the Benefit in Kind (BIK) tax, which applies to limited companies whose employees use company cars for personal purposes.
The amount of BIK tax incurred depends on the vehicle used, as not all cars are taxed equally.
Several factors influence the tax rate, such as official emission figures, compliance with emission standards, list price, fuel type, and for hybrid or electric vehicles, their range.
The Government establishes BIK rates, which currently range from zero to 37 percent and are typically adjusted annually.
These rates are designed to encourage the use of environmentally friendly vehicles, with lower emission cars attracting lower tax rates.
This makes hybrid and electric vehicles attractive options for employees, as they can save a significant amount in tax.
Fully electric vehicles have a current BIK rate of two percent, which will remain in effect until at least April 2025 for vehicles with zero carbon emissions.
This provides substantial tax savings for company car drivers. Ultra-low-emission vehicles, particularly plug-in hybrid electric vehicles (PHEVs), also enjoy attractive BIK rates.
The tax rates for PHEVs range from two to 14 percent based on CO2 emissions (below 50g/km) and the vehicle’s electric-only range. This makes plug-in hybrids a competitive tax option for drivers who may not be ready for a fully electric vehicle.
Financial benefits
Apart from tax incentives, hybrid company cars offer other financial advantages.
The Enhanced Capital Allowance (ECA) scheme allows businesses to claim 100 percent first-year capital allowances on investments in energy-saving technologies, including low-emission vehicles.
To be eligible, hybrid cars must meet the criteria set by the Office for Low Emission Vehicles (OLEV) and have CO2 emissions not exceeding 50g/km.
This scheme enables businesses to lower their taxable profits, thereby reducing their Corporation Tax liability.
Road tax
Businesses can also benefit from reduced Vehicle Excise Duty (VED), commonly known as road tax.
Hybrid vehicles generally have lower emissions compared to conventional vehicles, resulting in lower VED rates.
This can lead to significant savings for businesses, especially when operating a large fleet of vehicles.
Fuel efficiency
In addition to tax savings, hybrid company cars offer lower running costs.
They are more fuel-efficient than traditional petrol or diesel vehicles, leading to substantial savings on fuel expenses.
Moreover, hybrid vehicles typically have lower maintenance costs due to fewer mechanical components and reduced wear and tear.
Choosing hybrid vehicles for a company fleet is not only a smart business decision but also contributes to a greener future.
These vehicles provide tangible benefits to both businesses and their employees.
If you’re considering switching to a hybrid company car, contact us for expert advice and guidance.
