How does hybrid company car tax work?

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?

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.

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. 

How are businesses being incentivised to use hybrids?