Is putting a car through your company a smart tax move or a potholed road to problems? It’s one of those topics that have a lot of questions connected to it. Can any business claim a company car? What type of cars qualify as a company car? Is it worth hitching up to the company car bandwagon? Well, we’re here to lift the hood on the topic of company cars and take a professional evaluation on the engine of HMRC’s policies. Sit tight and buckle up.
What exactly is a company car?
Assuming you’re a business owner, a company car is a vehicle that the business provides for your or your employee’s use. While it’s ostensibly for work use, personal trips are often allowed, and if they are, then HMRC classes this as a “benefit in kind.” Also note that a sole trader or partners in a partnership can’t provide themselves a company car – they follow different rules. To have a company car in the context of this blog, you’ll need to be an employee or a director.
There’s always going to be tax involved
Of course you will need to pay tax on your car. We know, you already know this, but it’s better to be obvious than ambiguous when it comes to tax. Here’s what you need to know: The amount of tax you (and the business pay) is based on the following:
- CO₂ emissions (lower emissions = lower tax)
- List price (showroom floor price, not the haggled-down price)
- Fuel type (electric, petrol, diesel, caffeine, good intentions, etc.)
So no, it’s not a coincidence that every second doctor you meet is driving a Tesla. Electric cars come top of the list when it comes to choosing a company car. For the 2025/26 tax year, the “benefit in kind” (BIK) rate (the rate used to value your taxable benefit) starts at just 3%. This will slowly increase as time goes by, which means the early electric car bird gets the cheaper tax worm. The electricity used to charge the car can also be paid for by the business without any additional BIK.
On the other end of the spectrum lie the petrol and diesel cars (boo, hiss). Unless you have an ultra-low emissions vehicle, do not, and we repeat for emphasis, do not try putting a petrol or diesel car through your business. The BIK rate can get as high as an eye-watering 37%, and if the company pays for the privately used fuel, you get hit with even more tax. So unless you have very specific reasons, it doesn’t make financial sense.
Remember! The business will also pay extra national insurance at a rate of 15% of the benefit value. No such thing as a free (or untaxed) ride.
Quick company car example
An electric car with a list price of £50,000 has a BIK rate of 3% this tax year. This results in a taxable benefit of £1,500. If you are a basic rate taxpayer, then you will pay 20% tax on the £1,500, which is just £300. Not bad considering the company can pay for all lease, maintenance, repairs, electric charging, etc. and thus reduce its corporation tax bill. Here’s a link to a free handy calculator, you can play around and get a real life idea of tax numbers.
Is a company car worth it for you?
Pros
- Reduced personal costs: Maintenance, MOT, and road tax are issues you don’t need to worry about by virtue of always having a new car (if you lease as many do).
- Reduced fuel costs: Electricity used to charge electric cars can be completely claimed back against your business corporation tax with no additional benefit in kind.
- Reduced business costs: Insurance, lease costs, and other car expenses can be paid for by the business, thus reducing your business corporation tax.
- Street cred: Yup, always having the right car can really boost credibility with clients and business partners.
Cons
- It’s a commitment: most leasing arrangements come with a minimum time contract (2-4 years on average). If you’re buying the car, then it’s even more of a commitment.
- Paperwork: P11D forms, car expenses, fuel receipts. Everything must be recorded to benefit from any savings.
- Having a petrol, diesel, or any other high-emission vehicle will end up leaking money through tax from both you personally and your business. Yuck.
Tips to make a good company car choice
Generally speaking, we only recommend opting for electric cars to go through your business. Anything else, and the tax rates you have to pay cancel out any other benefit that might come through the arrangement. It also makes sense to involve your accountant in this decision – they’ll be able to advise a more specific tax cost/saving based on your business and your car preference.
Proactive and personalised accounting advice
Ready to take on a company car? Having a smart strategy is essential to make the best opportunity on car deals and to plan well for tax implications. We’re pretty good at crunching numbers and keeping our clients compliant with current company car regulations. Schedule a conversation here, we’re looking forward to chatting!
