‘If I’m buying a company car for the business, should I go fully electric or is a hybrid vehicle the better option?’
This is a common question we get asked at Saint & Co.
Both options have their merits.
Hybrid vehicles offer flexibility, familiarity and a fallback when charging isn’t convenient.
Electric vehicles, meanwhile, promise lower running costs and a cleaner environmental footprint.
But we get asked the question for the tax implications associated with the vehicles and, when we crunch the numbers, the picture starts to become clearer.
Comparison
I have compared the 2026/27 tax position if your company buys a £50,000 car for a shareholder-director, with the car being available for private use too.
What quickly stood out is how dramatically the tax treatment differs between an electric vehicle and a hybrid.
Let’s use the fully electric BMW i4 as a case study. The Benefit in Kind (BIK) is just 4%, which equates to a taxable benefit of £2,000 per year.
That’s a relatively modest cost from a personal tax perspective: only £400 for a basic rate taxpayer, rising to £800 or £900 at higher and additional rates. The company would also pay Class 1A National Insurance at around £300.
Compare that to a plug-in hybrid, for illustrative purposes, the BMW 330e with CO2 emissions of 19g/km and an electric range of 62.8 miles, which sits in a 10% benefit band, pushing the taxable value up to £5,000.
That immediately more than doubles the personal tax exposure at £1,000 basic rate, £2,000 at a higher rate and £2,250 at additional rate. From the company’s perspective, the NIC bill also increases significantly to £750.
When you consider fuel on top, the tax gap widens further.
With an electric vehicle, there’s no additional fuel benefit charge if the company covers the cost of charging. In HMRC’s eyes, electricity simply isn’t treated as fuel in the same way as petrol or diesel. That means the taxable position remains clean and predictable.
A hybrid, however, tells a different story. If the company pays for private fuel and the full private element is not reimbursed by 6th July following the end of the tax year, a separate fuel benefit charge kicks in.
For 2026/27, that adds £2,820 to the taxable benefit, and the total taxable benefit jumps to £7,820.
This would mean the personal tax of £1,564 at basic rate, £3,128 at higher rate and £3,519 at additional rate. The company’s Class 1A NIC would increase to £1,173.
This is when we need to ask whether the convenience of petrol back-up is really worth that kind of tax exposure.
Capital allowances
With a brand-new electric car, the business can currently claim 100% first-year allowances, meaning the full £50,000 cost is deductible in the year of purchase (provided the expenditure is incurred by 31st March, 2027). That’s an immediate and substantial tax saving, which can make a significant difference to cash flow.
A hybrid doesn’t get the same treatment. It doesn’t qualify for the 100% allowance but instead qualifies only for main-rate writing-down allowances because it’s a hybrid rather than a zero-emission car.
The allowances are generally at 14% in 2026/27, giving relief of about £7,000 in the first year rather than the full £50,000. The tax relief still comes, but it’s slower and far less impactful in the short term.
Conclusion
When everything is all weighed up, the electric option starts to feel not just favourable, but compelling. Lower BIK, no fuel benefit complication and faster capital allowances tax relief – it’s hard to ignore the cumulative effect of those advantages.
From a purely tax efficiency standpoint, the direction of travel is clear. If you’re thinking about buying a company car today, the balance is heavily in favour of electric.
