Company cars have always been viewed as an attractive perk, offering convenience, mobility, and even financial advantages. But with changes on the horizon, especially for hybrid and electric vehicles, there’s a lot to consider when deciding whether a company car makes sense for you or your business.
Here’s an updated look at company car benefits, with a focus on tax changes, hybrid challenges, and the shift to fully electric vehicles.
The rise of fully electric cars
Fully electric vehicles (EVs) are rapidly becoming the go-to choice for company cars. They’re cheaper to run, better for the environment, and come with significant tax advantages.
One major benefit is the 100% first-year allowance, allowing businesses to deduct the full cost of new EVs from their taxable profits. This incentive has been extended until March 31, 2026, giving businesses an extra year to take advantage. However, this only applies to new cars. The fact that this extension is shorter than the usual three years could signal changes ahead, so it’s worth keeping an eye on how this evolves.
Investing in charging infrastructure is also a smart move for businesses considering EVs. Many companies are installing workplace chargers, and for those who can set up a charger at home, the fuel savings are hard to ignore.
Hybrid cars: The looming tax increase
Hybrids have long been seen as a practical middle ground between petrol or diesel cars and fully electric vehicles. They offer the flexibility of a traditional engine while reducing emissions through an electric motor. But upcoming changes to Benefit-in-Kind (BIK) tax rates could make hybrids a far less appealing option.
At the moment, BIK for hybrids is calculated based on their electric-only mileage range. The higher the range, the lower the tax.
For example:
A hybrid with a 120-mile range has a 5% BIK rate in 2024/25. But from 2028/29, hybrids will no longer enjoy this favourable treatment. Instead, the rate will jump to a flat 18%, regardless of the vehicle’s range.
An example of the impact:
- Hybrid car: 120-mile electric range, list price £60,000
- BIK over time:
- 2024/25: 5% = £3,000 taxable benefit
- 2025/26: 6% = £3,600 taxable benefit
- 2026/27: 7% = £4,200 taxable benefit
- 2028/29: 18% = £10,800 taxable benefit
This sharp increase in tax will significantly affect the cost of owning a hybrid company car. If you’re considering a lease or purchase that extends beyond 2028, it’s worth factoring in these changes now.
What’s behind these changes?
The government’s tax policies around company cars are designed to push drivers toward greener choices. Hybrids, once seen as a step in the right direction, are now being overtaken by fully electric vehicles as the preferred choice for reducing emissions.
It’s clear that policymakers are encouraging the adoption of EVs. The tax landscape heavily favours fully electric models, and the 100% first-year allowance for new EVs is another incentive for businesses to make the switch. However, with the allowance only extended to 2026, it’s unclear what will happen beyond that.
What should you do?
If you’re in the market for a company car or managing a fleet, now is the time to review your options carefully:
- For businesses: Investing in new fully electric vehicles before 2026 will allow you to take advantage of the 100% first-year allowance while it’s still available.
- For individuals: Consider your lease terms carefully. A hybrid car might look appealing now, but if your lease extends into 2028 or beyond, the tax increases could make it much less affordable. Fully electric vehicles are likely to remain the most tax-efficient choice.
Key considerations when choosing a company car
Lease terms and tax projections
Company car leases often span three or more years, so it’s important to account for how tax rates will change over the lease period. A car that seems affordable now might become much less so in a few years.
Fully electric vs. hybrid
Hybrids might still make sense in the short term, but fully electric cars are increasingly the better option in terms of long-term costs and tax savings. EVs currently attract a 2% BIK rate, and even if this increases slightly in the future, it’s unlikely to reach the levels hybrids are heading toward.
Charging Infrastructure
Switching to a fully electric car may involve setting up a charging point at home or at work. While this comes with an initial cost, the long-term savings on fuel and the convenience of charging at home often outweigh the investment.
Need help with company car taxes or any other aspect of your business finances? Contact us today, we’d love to help!
