It simply doesn't attract the additional taxes, as the T5 does.
It has slightly less power from the internal combustion engine - 95 kWh instead of 132 kW (probably simply through a software limit) and a sub-£40,000 price tag, which allows it to avoid the £325 Vehicle Excise Duty surcharge.
"This efficiency underpins the XC40 Recharge T4's low day-to-day running costs, while sub-£40,000 on-the-road prices mean it doesn't attract the additional £325 Vehicle Excise Duty payable from years two to six. For business motorists, the low CO2 emissions further attract competitive benefit-in-kind rates for company car tax. A rate of just 12% means a 20% taxpayer would pay as little as £78 a month.
The new powertrain joins the established Recharge Plug-in Hybrid T5 in the XC40 range and is available in R-Design and Inscription equipment grades, with front-wheel drive. Respective on-the-road prices are £39,130 and £39,475."
In terms of battery capacity (8.5 kWh usable and 10.7 kWh total) and all-electric range (up to 27 miles / 43 km WLTP), it's still the same good old XC40 PHEV. Only the acceleration is slower - 0-100 km/h (62 mph) in 8.5 seconds instead of 7.3 seconds.
First deliveries are scheduled in the UK from October 2020, while in Q1 2021 the first XC40 BEVs will arrive.
Gallery: Volvo XC40 Recharge Plug-in Hybrid
Volvo XC40 Recharge Plug-in Hybrid specs: