Diesel hybrid cars avoid BIK penalty. Peugeot, Citroen & Volvo rejoice.

It’s been confirmed that diesel hybrid cars will not suffer the 3% BIK penalty for company car drivers – good news for Volvo, Citroen & Peugeot.

As a company car driver the Inland Revenue gets its cut no matter what. With BIK rates set based on CO2 emissions and list price, it’s hard to find a way to beat the system.

Even opting for a diesel car doesn’t help because, despite much better economy on the whole from diesels than petrol engined cars, HMRC adds an extra 3% to your BIK rate because diesels emit more of the stuff that matters – particulates and NOx – than a petrol-engined car.

Which is actually something we support and have said before that it should be real emissions which decide the BIK rate, not CO2 and list price. Still, we all have to live with what is.

But one piece of good news for diesel company car drivers is that they can avoid the 3% surcharge for diesels by opting for a new diesel hybrid.

It appears that the relevant legislation for this (s141(3) of ITEPA 2003 – if you care) states that the surcharge applies to company cars ‘propelled solely by diesel’. Which means diesel hybrids are exempt from the charge.

Volvo, who are launching their diesel-electric hybrid – the V60 Plug-In – in 2012, has campaigned for taxation to be based on the particulates and NOx emissions (which Cars UK backed) and even have an app available to show the real emissions for a wide range of cars on the market.

So they are unsurprisingly chuffed that their hybrid diesel will not attract the surcharge. Selwyn Cooper from Volvo UK said:

We are delighted that HMRC has both cleared up the confusion as well as acknowledging the rightful banding for diesel hybrids is alongside its petrol hybrid siblings.

Peugeot was equally pleased – especially as the Peugeot 3008 HYbrid4 is already on sale. Phil Robson from Peugeot said:

The clarification by HMRC that customers of our HYbrid4 cars will not incur the 3% diesel surcharge and benefit from the 10% threshold for personal BIK taxation is excellent news. It is the final piece in the HYbrid4 jigsaw and means that both individuals and businesses will benefit from the best possible environmental and fiscal position.

And with the Citroen DS5 Hybrid4 launching soon – with the same diesel hybrid underpinnings as the 3008 – the man from Citroen had a view too. Andy Wady said:

This is fantastic news as we gear up for the launch of DS5 early next year.  It’s also great news for many company car drivers already attracted to DS5 and the Hybrid4 powertrain with its impressive fuel economy, low CO₂ emissions, free VED, no London Congestion Charge…and now a BIK taxation rate at just 10%.

This accidental outbreak of common sense from HMRC is to be welcomed (they never envisaged hybrid diesels when the legislation was drafted), but what would be far more sensible is to remove the CO2 emissions from the BIK formula altogether, and replace it with a charge based on real emissions.

But that’s just far too sensible a move for it ever to happen.