Navigating the world of company cars can feel overwhelming, especially when considering hybrid and all-electric options. Both come with a range of benefits and drawbacks, especially when it comes to tax laws and cost implications.
In this post, we’ll break down the key differences so you can make an informed choice for your company car, and maybe even save a bit on tax along the way!
Why Should I Consider Electric or Hybrid for a Company Car Anyway?
Basically, because the push toward sustainability has made hybrid and electric cars attractive choices for company cars because of the tax saving incentives. Understanding their advantages and cost implications can help you pick the best option for both your budget and the environment.
Plus Points for All-Electric Company Cars: Zero Road Tax and Big Savings
All electric vehicles (EVs) have surged in popularity, and for good reason. Not only are they environmentally friendly, but they also come with a host of tax savings for businesses and employees alike.
- No Road Tax Until April 2025
- One of the biggest perks of going all electric is that there’s no road tax (Vehicle Excise Duty) on these vehicles until April 2025. That’s an instant cost-saving that’s hard to ignore.
- Low Company Car Tax (Benefit-in-Kind)
- For tax purposes, electric vehicles are the most economical option. The Benefit-in-Kind (BiK) rate for EVs is currently around 2% of the car’s list price, which is significantly lower than petrol or diesel vehicles. That means your tax bill will be lighter, freeing up cash for other areas of the business.
- Lower Fuel Costs
- Electricity is generally cheaper than petrol or diesel, and if you have access to a charging point at home or work, you can save even more! Some businesses also offer free charging stations, which adds further value.
- Clean Air Zones and Congestion Charges
- Many UK cities have introduced clean air zones, and fully electric cars are often exempt from congestion and low emission charges. If your employees regularly drive into these areas, choosing an EV can lead to substantial savings.
- Many UK cities have introduced clean air zones, and fully electric cars are often exempt from congestion and low emission charges. If your employees regularly drive into these areas, choosing an EV can lead to substantial savings.
Considerations for EVs:
- Higher Purchase Price: EVs can be more expensive to buy or lease upfront, though leasing can ease this burden.
- Charging Infrastructure: While EV charging networks are expanding, availability can still be an issue on long journeys. Be sure to assess the availability of charging points in your region.
Plus Points for Hybrid Company Cars: Flexibility with Reduced Emissions
Hybrid vehicles offer a middle ground between traditional fuel powered cars and fully electric vehicles. They can provide good savings while offering more flexibility, particularly for employees who travel long distances.
- Reduced Emissions and Lower BiK Tax Rates
- Hybrid vehicles, especially plug-in hybrids with low CO₂ emissions, come with lower BiK rates than petrol or diesel cars. The BiK rate for a hybrid is typically between 8-20%, depending on the car’s CO₂ emissions and electric range. The longer the electric range, the lower the tax rate, giving you a benefit similar to that of an EV (at least when used efficiently).
- Fuel Flexibility
- With both petrol and electric capabilities, hybrids reduce “range anxiety” and offer flexibility for longer drives. This can make them a better fit for employees who cover extensive mileage, and may not have consistent access to charging points.
- With both petrol and electric capabilities, hybrids reduce “range anxiety” and offer flexibility for longer drives. This can make them a better fit for employees who cover extensive mileage, and may not have consistent access to charging points.
Considerations for Hybrids:
- Fuel Costs: Hybrid cars still use petrol or diesel, so fuel costs are generally higher than for EVs. If the vehicle isn’t charged frequently, efficiency can decline, reducing the fuel savings.
- Road Tax: Unlike all-electric cars, hybrids are subject to road tax based on their CO₂ emissions. While still lower than for standard petrol or diesel cars, the cost is higher than EVs (at least until April 2025).
- Maintenance: Hybrids tend to be more complex than fully electric or petrol vehicles, requiring maintenance for both the combustion engine and electric components. This could result in slightly higher maintenance costs over time.
Things to Consider for BOTH Hybrid and All-Electric Company Cars
- Insurance Costs: Both hybrids and EVs can have slightly higher insurance costs due to repair costs (especially for EV batteries). However, many insurers now offer discounts for low emission vehicles.
- Leasing Costs: Leasing costs for an EV can be higher due to their high purchase price, but tax breaks can offset this, especially when considering the current BiK savings.
- Charging Setup Costs: If charging at home or the office, there may be one-off setup fees for charging points, though many energy providers now offer incentives or grants to offset this cost.
Making the Right Choice for Your Business
Choosing between a hybrid or an all-electric company car ultimately comes down to balancing the upfront costs, ongoing tax savings, and the practical needs of your team.
All-electric cars offer significant tax advantages, lower fuel costs, and no road tax until April 2025.
Hybrids, while not as cost effective in terms of tax, provide flexibility and reduced emissions, which may suit employees who drive longer distances.
As tax incentives continue to evolve, understanding the tax laws on company cars will help ensure you’re making a decision that’s both financially smart and future-proof.
Still need help deciding what the best choice is for your business?
Let’s chat. We’ll help you get on track (in the right company vehicle for you!)
