Everything you need to know about hybrid company car tax

Already familiar to fleets, hybrids can be just as effective at cutting your tax bills as reducing your carbon footprint

The UK government has set out its ambitions for 100% of cars to be electric from 2035, but there’s still value in the middle ground.

Hybrids combine the efficiency of an electric motor with the long-range flexibility of a combustion engine, and they’ve been helping save businesses money for a long time, since the first models arrived more than 20 years ago. And although incentives have waned a little recently, hybrids can be an effective route to keeping your tax bills low. 

*How do you calculate hybrid company car tax?*

Like any other workplace perk, a company owned or leased vehicle which is available for private journeys is classed as a taxable Benefit-in-Kind (BiK). The amount drivers pay is heavily influenced by their car’s CO2 emissions, which has made businesses an early adopter of hybrids, as these have escaped some of the eco penalties levied on diesel cars.

The foundation is what’s called the ‘taxable value’ – a percentage of the car’s list (or P11d) price which becomes progressively larger for models with higher CO2 emissions. Tax bands were revised in April 2020, introducing ultra-low rates for cars with CO2 emissions of 50g/km or less (which covers the majority of plug-in hybrids) and differentiating between them based on their electric range. 

*Autocar's company car tax calculator shows exactly what you will pay for every make and model*

This has created a sizeable gap between ‘self-charging’ hybrids (think Toyota Prius) and the growing selection of plug-in hybrids, which offer a much longer electric range, significantly lower CO2 emissions and tend to fall into those new ultra-low tax bands. The taxable value of most current plug-in hybrids is 8% or 12% of the list price, compared to at least 25% for a typical ‘self-charging’ hybrid, which is in line with an equivalent petrol or diesel car.  

Vehicle Type P11d BiK rate Taxable value
Volkswagen Golf 2.0 TDI 150PS Style Deisel £31,275 28% £8,757.00
Volkswagen Golf 1.4 TSI eHybrid Style PHEV £35,260 8% £2,820.80
Toyota RAV4 Dynamic AWD-i Hybrid £41,115 30% £12,334.50
Toyota RAV4 Plug-in Dynamic AWD-i PHEV £43,420 8% £3,473.60

Benefit-in-Kind is a percentage of that taxable value based on your income tax rate. England, Wales and Northern Ireland have three tiers (20%, 40% and 45%), while Scotland has a five-tier system between 19% and 46%. A driver paying 20% income tax would be liable for 20% of the taxable value each year, typically split into 12 monthly instalments and collected from their monthly wages. 

Vehicle Type 20% Taxpayer BiK 40% Taxpayer BiK
Volkswagen Golf 2.0 TDI 150PS Style Diesel £145.95 £291.90
Volkswagen Golf 1.4 TSI eHybrid Style PHEV £47.01 £94.03
Toyota RAV4 Dynamic AWD-i Hybrid £205.58 £411.15
Toyota RAV4 Plug-in Dynamic AWD-i PHEV £57.89 £115.79

*What incentives are available for businesses to use hybrids?*

With strong incentives and no range anxiety, hybrids (particularly PHEVs) have been a popular first step towards electrification for company car drivers. However, they can also benefit fleet operators. 

Employers pay Class 1A National Insurance Contributions (NICs) for providing workplace perks. For cars, this is a flat rate of 15.05% of the of the vehicle’s taxable value, which means it’s just as heavily CO2-weighted as BIK tax for drivers. Some examples are shown below. 

VEHICLE TYPE ANNUAl Class 1A NIC
Volkswagen Golf 2.0 TDI 150PS Style Diesel £1,141.03
Volkswagen Golf 1.4 TSI eHybrid Style PHEV £353.82
Toyota RAV4 Dynamic AWD-i Hybrid £1,716.15
Toyota RAV4 Plug-in Dynamic AWD-i PHEV £499.31

Businesses with vehicles emitting 50g/km CO2 or less can deduct 100% of the monthly lease cost or 18% of the purchase cost against pre-tax profits – above that threshold, it falls to 85% and 6% respectively. 

All hybrids also qualify for a £10 reduction in Vehicle Excise Duty (or ‘road tax’) but attract the full luxury car levy – currently £355 – if the list price is £40,000 or more. This applies during the first five annual renewals, which can make them more expensive to tax than a petrol or diesel model, as shown below. 
List price under £40,000 List price £40,000 or more
Petrol or diesel £165 £520
Hybrid (including plug-in) £155 £510

*Alex Grant*