How does hybrid company car tax work?

Close News by Alex Grant 3 mins read 3 April 2023 Share

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 for 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?

The mileage rates for petrol, diesel, hybrid and electric carsHow to keep your company car tax bills lowHow do you claim for charging an electric company car?How does home charging work for company car drivers?Company car tax bands: how much will you pay?

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 is 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-in hybrids.

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 with 25% for a ‘self-charging’ hybrid or diesel car.

Vehicle	Type	P11d	BiK rate	Taxable value
Volkswagen Golf 2.0 TDI 150PS Style	Diesel	£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?

Latest Drives

Alpina B5 GT 2023 first drive

BMW X7 xDrive40d M Sport

Renault Clio E-Tech 2023 first drive

Alfa Romeo Giulia Quadrifoglio 2023 first drive

Polestar 2 Long Range Single Motor RWD 2023 first drive

View all latest drives

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 for 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.

Car news Advice Company cars

used cars for sale

Ford S-Max 2.0 TDCi Titanium X Sport Powershift Euro 5 5dr 2015 £14,295 57,000miles Diesel Automatic 5

Audi S5 3.0 TFSI V6 Sportback Tiptronic Quattro Euro 6 (s/s) 5dr 2017 £26,950 53,000miles Petrol Automatic 5

Citroen C3 1.0 PureTech VT Euro 6 5dr 2016 £6,000 27,000miles Petrol Manual 5

Nissan QASHQAI 1.2 DIG-T N-Connecta 2WD Euro 6 (s/s) 5dr 2016 £12,295 45,000miles Petrol Manual 5

Skoda CITIGO 1.0 MPI SE ASG Euro 5 5dr 2013 £6,495 50,000miles Petrol Automatic 5

Seat Leon 1.4 EcoTSI FR Euro 6 (s/s) 5dr 2016 £8,795 97,634miles Petrol Manual 5

Fiat 500 1.2 Colour Therapy Euro 6 (s/s) 3dr 2014 £5,000 73,000miles Petrol Manual 3

Porsche Cayenne 4.2 TD V8 S TiptronicS 4WD Euro 6 (s/s) 5dr 2016 £30,990 85,000miles Diesel Automatic 5

Nissan Qashqai 1.2 DIG-T N-tec+ 2WD Euro 6 (s/s) 5dr 2016 £10,995 55,621miles Petrol Manual 5 Next Prev View all cars Powerd By

Get all the best car news, reviews and opinions direct to your inbox three times a week. You can unsubscribe via any email we sendSee our full privacy notice for more details

Never miss an issue of the world’s oldest car magazine – subscribe to Autocar magazine today. Subscribe

How does hybrid company car tax work?

Related articles