Is a Plug-In Hybrid an Electric Car?

Is a Plug-In Hybrid an Electric Car?

Understanding the right fuel choice for a personal leasing customer or business leasing customer (including salary sacrifice) has fast become a difficult proposition. Only a few years ago we faced the “petrol v diesel” debates, as previous political persuasion towards the diesel had brought about a cultural change which was no longer a practical one. Vehicles were discovered to be less efficient than the manufacturers were suggesting and emissions, both CO2 and NO, were higher than stated.

The so called “dieselgate” brought about changes with the introduction of the WLTP testing standards together with a more balanced view on fuel choices for customers. As a broker, not a lender or supplying dealership, we sit very much in the middle of the transaction and while it is not formally our job to communicate this on the manufacturer’s behalf, we send out a litany of information to the customer on any fuel choice (where requested).

For example, with diesel vehicles our information sheets discusses AdBlue, DPF and the impact of NO on the environment / air quality. This is not about persuading customers to make a specific decision; only to assist them to make an informed one.

In more recent years, this potential for confusion (or mis-selling) has been compounded by the introduction of newer fuel types including mild hybrids, self-charging/full hybrids, Plug-In Hybrids and Pure Electric / Battery Electric vehicles. While some lessons from the scandals above were learned, the propensity for more issues has not gone away. There are still brokers/dealerships/manufacturers not properly educating customers on what the fuel choice actually is and offering a balanced view of its strengths and weaknesses.

We are still seeing misleading approaches which are suggesting there is a better, or more preferred, fuel type. Even adverts which purport that you can have “self-charging hybrid electric” are pushing customers towards the wrong fuel choices because they do not properly explain what the customer will actually receive.

So is the PHEV the future of cars? Before we go further into this statement, it may be worth clarifying what this  car actually is. A PHEV is a combustion engine, petrol or diesel, which is combined with a smaller lithium-ion battery so that two elements can work together or separately. The notion of adding a small battery (but one which is bigger than a hybrid) is to minimise the CO2 emission of the vehicles, while allowing enhanced MPG and shorter periods of electric-only driving (often 15-25 miles).

At the crux of the PHEV is the ability to enjoy the best of both worlds, in that you have a combustion engine to operate on longer journeys, with the battery being there to assist in shorter stop/start journeys. However, unlike a hybrid, the driver needs to ensure that the battery is effectively charged which means connecting to a 3-pin plug or, ideally, a separate home charge point. The moving and braking of the vehicle is insufficient to charge the battery. To be clear, should you not charge the battery effectively, the car will operate on the combustion element alone, which is why you may hear the submission that “PHEVs are not economical”.

The combination of the combustion together with the battery does seem to offer a comfort to the driver, in case there is a “range anxiety” concern together with the potential to educate them on the notion of charging. With a home charge point able to fully-charge the battery in 2/3 hours, ensuring there is sufficient charge is easy. But, for the PHEV to be recognised as a viable solution, we would suggest that it will depend very much on the driver’s individual circumstances.

Should a driver be covering less than 10,000 miles per annum and have off-road parking, we would often ask why not go for a pure electric/battery electric car? In a situation of a higher-mileage driver, 25,000 miles per annum and above, who may not have charge point access, we can see the benefit in using a diesel vehicle for the motorway travelling together with the lithium-ion battery for the urban travel. With more and more charge points now available on the UK roads, there is a diminishing argument for range-anxiety. Just check Zap Map for an illustration of just how many devices/location there are for charging your electric car!

Does a PHEV avoid company car tax as a company car/salary sacrifice vehicle?

But a PHEV doesn’t incur car tax for a BCH or Sal Sac driver does it? The push towards electrification has very much been influenced by the BiK position as set by HMRC. In the tax year 2019-20, a pure electric car would incur a BiK of 16%, which meant that for many EVs (which were traditionally higher P11d options) the cost was quite significant and the impetus to change was limited.

From 2020, HMRC announced that a car emitting zero emission from the tailpipe would incur 0% BiK with this to increase to 1% in 2021 and then to 2% in 2022 (and beyond). For the first time in many years we now have the situation of a “free” company car, meaning that company car and salary sacrifice drivers currently pay almost no tax for the benefit of their car. But what about PHEVS? In order to support the theme of zero emissions, HMRC have confirmed an enhanced position for PHEVs on a sliding scale of their EV range. For example, in our current tax year (2021-22):

• EV range of 130 miles+ = 2%
• EV range of 70-129 miles = 5%
• EV range of 40-69 miles = 8%
• EV range of 30-39 miles = 12%
• EV range of 0-29 miles = 14%

So long as your new PHEV emits no more than 50g/km of CO2 you are able to benefit from some enhanced tax treatment. Before you commit to your new deal, make sure you fully understand both the CO2 AND the EV-only range. As you will note above, this can have a dramatic impact on your tax.