Tax changes mean PHEV drivers stand to make big savings
April’s Benefit-in-Kind tax changes introduced a big shake-up in the way electrified vehicles are taxed. While drivers of battery EVs are the big winners, moving to a 0% BiK rate for 2020/21, plug-in hybrid vehicles are also now very tempting for business drivers.
That’s because, from April 6, it’s not just the CO2 emissions of a PHEV that determine a driver’s tax bill – the car’s range when running as an EV matters, too.
WHAT EXACTLY ARE THE NEW TAX RATES?
Plug-in hybrids with carbon emissions of up to 50g/km will be taxed on between 0% and 12% of the car’s P11D value. It’s the range that determines the car’s banding within these parameters – the farther the car can go without using its internal-combustion engine, the lower the tax rate.
As a rule of thumb, that puts the latest generation of PHEVs at an advantage over older models, because the newer designs often have longer electric ranges.
The minimum rate of 0% applies to vehicles that can go farther than 130 miles as EVs (or it would apply if any vehicle ever comes to market meeting this criteria). It rises to 12% for vehicles with a range of less than 30 miles. The BiK rates for newly registered PHEVs will go up by 1% over each of the two following tax years.
Things get a little more complicated if we compare cars that were registered before 6 April with those registered after this date. For cars already on the road, it’s the NEDC range that applies.
For new cars from 6 April onwards , the range figure for tax purposes is the one achieved under the tougher WLTP protocol.
To compensate for the different range figures for identical cars, separate rates apply to older vehicles, ranging from 2% to 14%. These rates remain the same for the next three tax years.
WHICH PHEVS ARE THE MOST COST-EFFECTIVE?
For these comparisons, we’ll use WLTP figures and tax bands for newly registered vehicles, so we have a level playing field.
The new Vauxhall Grandland X Hybrid4 has a 34-mile range as an EV, and carbon dioxide emissions of 29-32g/km. That puts the car in the 10% BiK rate for cars registered after 6 April.
With a P11D value of £32,355, that gives a monthly tax bill for a higher-rate taxpayer of just £107.85.
An potential rival for the Grandland is the Hyundai Ioniq PHEV. According to the Vehicle Certification Agency’s database, this emits 26g/km and has a 32-mile range. Cars registered from 6 April will sit in the same 10% band as the Vauxhall.
P11D values start from £29,895 for the Premium spec model, giving a monthly tax bill of just £99.65.
So, the Hyundai is even more affordable than the Vauxhall. But the scale of the savings are more dramatic when you compare either car with a diesel equivalent. With emissions of 121-129g/km, the Grandland X 1.5-litre diesel is in the 31% tax band as a minimum. Even using the version with the lowest P11D figure for the comparison (the SE Premium), the monthly tax bill is £285.67. So anyone choosing a Grandland X Hybrid over the diesel will save £177.82 per month.
BIG PHEV, BIG SAVING
The potential savings are even more appealing when comparing larger PHEVs. The BMW X5 45e has a range of 54 miles, and CO2 emissions of 27-44g/km. Even the higher emissions figure is within the 50g/km threshold, and with such a long range the X5 sits in the 6% BiK band.
So despite being a heavy, high-performance SUV, the 45e actually makes an extremely compelling case as a company car. Even though it has a high P11D value of £63,110, a higher-rate taxpayer will pay just £126.22 per month to run one as a company vehicle.
From a fiscal perspective, it puts the Volvo XC90 T8 Twin Engine in the shade. Under the WLTP test procedure, the T8’s CO2 figure is 66-77g/km. So emissions aren’t low enough for the car’s EV range to make a difference to its tax banding. Instead, it sits in the 16% bracket as a minimum.
A T8 R-Design will attract a monthly tax bill of £355.01, more than double the cost to a BMW driver.
However, as with our other example, an equivalent diesel model will cost the end user a great deal more. A BMW X5 xDrive 30d xLine has a P11D value of £56,730, and sits in the 37% tax bracket. That gives a monthly bill of £699.67. That’s well over five times the monthly cost of the X5 45e.
The new tax regime makes PHEVs significantly more attractive than ever to company car drivers. Plug-in hybrid sales are up 49.9% year-to-date, and such low tax bills will serve to further accelerate this powertrain’s popularity among business drivers.