IN a significant move for business users, HMRC has agreed that the 3% diesel surcharge on benefit in kind company car tax will not apply.

Now, before you all jump up and down thinking a tax rebate is on the way, we should clarify: on diesel hybrids.

What’s a diesel hybrid? Well they might not be too familiar to you right now, but there will be plenty more on their way. The Peugeot HYbrid4 is the world-first diesel-electric hybrid layout presently using a 2.0-litre HDi 163 diesel engine to propel the front wheels and a 37bhp electric motor the rear wheels.

The results of the diesel-electric combo are CO2 emissions from 99g/km and the potential for 74mpg – meaning low company car tax for business users (10% company car tax banding) and low running costs for small businesses and SME fleets, with reduced NI bills and 100% first year capital allowances for those firms that buy their business cars.

The issue was first brought to light in BCM (03 November 2011) in a special report by tax specialist Jeff Whitcombe of BCF Wessex – Do you have to pay a 3% company car tax supplement on a hybrid?

An HMRC spokesman confirmed Jeff’s arguments: “The 3% supplement cannot apply to a diesel hybrid because s141(5) of ITEPA 2003 (the regulatory document) defines ‘diesel car’ as being ‘propelled solely by diesel’.”

We spoke to Jeff who said: “We’re very pleased to see that the revenue has changed its position and will not be applying the surcharge going forward.”

The change is an important one. Apart from Peugeot’s 3008 HYbrid4, further expansion of Peugeot’s diesel-electric hybrid range includes the 508 RXH and 508 Saloon.

Phil Robson, fleet sales director at 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.

“As a company car owner Peugeot’s HYbrid4 means low fuel costs, low emissions, low BIK company car tax and for the company lower Employer National Insurance contributions, alongside an allowance for the company to offset 100% of the list price, in the first year, against its taxable profits. Let’s not forget, in addition the 3008 HYbrid4 delivers 74mpg, 200 BHP, four wheel drive and electric mode, a truly unique and innovative vehicle in the market.”

However, Peugeot won’t have the market to itself.

Citroen has its own DS5 arriving, which will also feature Hybrid4 diesel hybrid technology. providing enhanced performance and class leading environmental credentials. The advanced Hybrid4 system delivers 200bhp; four-wheel drive capability; emission-free electric power for the city; and an acceleration boost function for the open road – with total CO2 emissions of just 99g/km.

Andy Wady, Citroen’s fleet director, 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 company car taxation rate at just 10%.

“Hybrid4 represents a significant environmental advance that helps us build on our commitment to drive down CO2 emissions. Already, a full 50% of Citroen cars sold this year emit under 130g/km of CO2 and there has been a five-gram decrease in average CO2 emissions for the European range as a whole.”