Tax incentives for hybrid cars
As hybrid cars tend to have better fuel economy and lower tailpipe CO2 emissions than conventional models, most forms of CO2-based car tax are generally lower for hybrids than they would be for an equivalent non-hybrid car. This is most obvious for used cars which come under previous VED rules, but is still the case for hybrids registered since 1st April 2017.
Car tax (Vehicle Excise Duty)
For cars registered from April 2017, hybrid cars are eligible for the £10 Alternative Fuel Discount, which is applied to both the First Year Rate and Standard Rate. The greatest benefit for hybrids is found in the First Year Rate which puts a weighting on the amount of CO2 tailpipe emissions produced - with hybrids performing strongly in this respect.
For cars registered between March 2001 and March 2017, hybrids enjoy even greater VED benefits thanks to car tax being calculated entirely on CO2 emissions. Current and previous tax rates are shown on our car tax page.
Due to their lower tailpipe CO2 emissions, car tax for hybrid cars is generally lower than it would be for a non-hybrid model. With CO2 levels being reduced by around 20%-25%, hybrid cars are placed three to four tax bands lower than would otherwise be the case.
Company car tax
When a company car is made available for the private use, a 'Benefit-in-Kind' (BIK) rate is calculated based on the car's value and its tailpipe CO2 emissions. The current BIK rates are shown on our company car tax page.
As hybrid cars have lower tailpipe CO2, due to their improved fuel economy, company car tax for hybrid cars is generally lower than it would be for a non-hybrid equivalent car. With CO2 levels being reduced by around 20%-25%, hybrid cars are placed many tax bands lower than would otherwise be the case.
For example, the equivalent to a petrol hybrid car with CO2 emissions of 100 g/km (13% BIK rate) would probably be in at least the 18% BIK rate band – cost wise this would translate to a saving of at least £1,000 per year for a model worth £20,000.
Ultra Low Emissions Discount
The Ultra Low Emissions Discount scheme was introduced in July 2013. Under the scheme, all vehicles that emit less than or equal to 75 gCO2/km and meet Euro 5 emissions standards qualify for 100% discount on the London Congestion Charge (subject to a £10 annual registration fee).
While any technology can qualify, some Euro 5 and 6 hybrid models have CO2 emissions under this threshold. Note that most plug-in hybrids already qualify for the full 100% discount.
Enhanced Capital Allowances
For some green technologies, businesses are able to claim an Enhanced Capital Allowance intended to allow a company or organisation to set the whole cost of the asset (used for business related activities) against its taxable profits in the first-year following purchase.
From April 2015, new cars with tailpipe C02 emissions of less than 75 g/km are eligible for an ECA. While any technology can qualify, some hybrid models have CO2 emissions under this threshold. Most plug-in hybrids already qualify for the ECA scheme.