How does hybrid company car tax work?
Hybrids are important in the transition to more sustainable fleets, with some attractive tax breaks on offer
After almost 25 years on sale, hybrids are finally having their place in the limelight. Combining an efficient electric motor with the long-range and short refuelling times of a combustion engine, they offer a stepping stone towards electrification drivers who aren’t ready to switch to battery-electric vehicles, and offer some useful savings for fleets, too.
The tax breaks aren’t as generous as they once were, and hybrids will be phased out completely once the UK’s new car market becomes 100% electric in 2035, but in the meantime there are plenty of good reasons to consider one as a company car.
*How do you calculate hybrid company car tax?*
If you’re driving a car which is owned or leased by your employer but also available for private journeys, then it’s classed as a ‘Benefit-in-Kind’ and it’s also a taxable perk. Since 2002, this has incentivised vehicles with the lowest CO2 emissions, which has counteracted hybrids’ higher list prices and created an early adopter market among business fleets.
Those incentives are still in place. Company car tax is based on the car’s ‘taxable value’, which is a percentage of its list price (known in tax terms as the P11d value) that gets larger for models that emit more CO2 at the tailpipe. Company car tax bands were overhauled in April 2020 and, although so-called ‘self-charging’ hybrids are competitive with an efficient diesel car, the new system reserves the biggest incentives for plug-ins.
*Autocar's company car tax calculator shows exactly what you will pay for every make and model*
Plug-in hybrids get a larger, mains-rechargeable battery, offering a much longer electric range and significantly lower CO2 emissions. If they emit less than 50g/km, then they fall into one of five ultra-low tax bands introduced in 2020, according to their electric range. In turn, most plug-in hybrids are taxed based on 8% or 12% of their list price, compared to 25% for a ‘self-charging’ hybrid or diesel car.
Vehicle Type P11d BiK rate Taxable value
Volkswagen Golf 2.0 TDI 150PS Style Deisel £31,735 32% £10,155
Volkswagen Golf 1.4 TSI eHybrid Style PHEV £35,720 8% £2,858
Toyota RAV4 Dynamic AWD-i Hybrid £40,960 31% £12,698
Toyota RAV4 Plug-in Dynamic AWD-i PHEV £44,085 8% £3,527
Driver 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 five bands 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. With a low taxable value, a plug-in hybrid offers attractive Benefit-in-Kind savings for drivers.
Vehicle Type 20% Taxpayer BiK 40% Taxpayer BiK
Volkswagen Golf 2.0 TDI 150PS Style Diesel £169 £339
Volkswagen Golf 1.4 TSI eHybrid Style PHEV £48 £95
Toyota RAV4 Dynamic AWD-i Hybrid £212 £423
Toyota RAV4 Plug-in Dynamic AWD-i PHEV £59 £118
*How are businesses being incentivised to use hybrids?*
Hybrids, and especially plug-ins, have been an attractive option for company car drivers for as long as they’ve been available in the UK, backed by strong incentives and avoiding the range and charging anxiety of going fully electric. However, there are some good reasons for fleet operators to consider them too.
Employers pay Class 1A National Insurance Contributions (NICs) for providing workplace perks. For cars, this is a flat rate of 13.8% of the vehicle’s taxable value, so it’s just as heavily CO2-weighted as the BiK system for drivers. Some examples are shown below.
VEHICLE TYPE ANNUAl Class 1A NIC
Volkswagen Golf 2.0 TDI 150PS Style Diesel £1,401
Volkswagen Golf 1.4 TSI eHybrid Style PHEV £394
Toyota RAV4 Dynamic AWD-i Hybrid £1,752
Toyota RAV4 Plug-in Dynamic AWD-i PHEV £487
Until then, hybrids will qualify for a £10 reduction in both the first-year and annual road tax payments, but they still attract the luxury car levy (currently £355) if the list price is £40,000 or more. This is applied during the first five annual renewals and can result in higher tax costs than a petrol or diesel car, 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
Businesses can also deduct 100% of the monthly lease cost or 18% of the purchase cost against pre-tax profits if it’s funding a vehicle that emits 50g/km CO2 or less. Above that threshold, the deduction is reduced to 85% and 6% respectively.