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Hybrid car company car tax

Hybrid cars make a tax-efficient choice for business drivers. Here's why hybrids are becoming ever more popular in the company car park...

Best plug-in hybrids 2020

Electrified cars – both fully electric and hybrids – are fast taking over as the smart choices for company car drivers.

For the next few years that shift looks set to accelerate, as benefit-in-kind tax bandings make hybrids (especially plug-in hybrids) very tax efficient.

How are hybrid company cars taxed?

Regular hybrids (by which we mean cars that can't be plugged in to recharge) are taxed in the same way as any petrol or diesel car. The amount of tax a driver will pay depends on the car's P11d value (the on-the-road price, less the cost of registration and the first year's car tax) and its CO2 emissions. The same is true of mild hybrids (cars with electrical assistance but which can't run on electricity alone, even for short distances). The lower the price, and the cleaner the emissions, the less the driver will pay in tax.

However, if a hybrid emits 50g/km or less, then lower tax rates apply. In effect, these lower tax bands are for plug-in hybrids (PHEVs), as other types of hybrid don't meet the emissions threshold. For cars with low enough emissions to qualify, the longer the electric range, the lower the tax band.

Company car tax bands for cars emitting 50g/km or less registered from 6 April 2020

CO2 emissions g/km...

Electric range...

 2020-21...

2021-22...

2022-23...

0

n/a

0

1

2

1-50

>130 miles

0

1

2

1-50

70-129 miles

3

4

5

1-50

40-69 miles

6

7

8

1-50

30-39 miles

10

11

12

1-50

<30 miles

12

13

14

Company car tax bands for cars emitting 50g/km or less registered before 6 April 2020

CO2 emissions g/km...

Electric range...

2020-21... 

2021-22...  

2022-23...

0

n/a

0

1

2

1-50

>130 miles

2

2

2

1-50

70-129 miles

5

5

5

1-50

40-69 miles

8

8

8

1-50

30-39 miles

12

12

12

1-50

<30 miles

14

14

14

The two sets of rates exist because the official CO2 emissions figures for new cars switched to the more stringent WLTP tests from 6 April 2020.

As you can see from the tables, a plug-in hybrid with low emissions earns a very low tax banding, although the rates aren't as favourable as those that apply to pure-electric cars.

None of the plug-in hybrids currently on sale can qualify for the very lowest rates, as they don't have sufficient range. But they are still much cheaper to tax than the petrol or diesel equivalent.

PHEV vs ICE

Let's work through an example to illustrate the point.

Say you are choosing which BMW 3 Series Touring should be your next company car. At the time of writing, the plug-in hybrid BMW 330e Touring M Sport has a P11d value of £43,580.  The diesel BMW 320d M Sport has a value of £40,940. For the 2021/22 tax year the PHEV sits in the 11% tax bracket, while the diesel is in the 30% band.

So over the full year, a 40% tax-payer running the 330e will pay out £1917.52. If they'd chosen the 320d instead the bill would be £4912.80. Choosing the hybrid saves £2995.28 in just one tax year.

With the sums so heavily in hybrid's favour, it's no wonder that registrations of plug-in hybrid electric vehicles were up by 91.2% in 2020.

Conclusion

For rock-bottom benefit-in-kind tax bills, you can't beat a pure-electric car. But a hybrid is very much the next best thing, especially a plug-in hybrid with a healthy battery-powered range. And switching from a petrol or diesel to a hybrid takes less getting used to than changing to a fully electric car.


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