Can I Claim Company Car as a Business Expense?
Yes, but you'll pay Benefit in Kind tax. Electric cars have much lower BIK rates (2% in 2025/26).
What HMRC Says
Company cars are a taxable benefit. BIK is calculated based on the car's list price and CO2 emissions. Lower emissions = lower tax.
When You Can Claim
- Company buys/leases car (costs are deductible)
- All running costs paid by company
- Electric vehicles have 2% BIK rate
When You Cannot Claim
- Private fuel paid by company (creates separate fuel BIK)
- Personal mileage costs
Understanding Company Car Expenses
Company cars are one of the most complex areas of UK tax for small company directors. The costs of purchasing, leasing, and running a company car are deductible for Corporation Tax purposes, but the director or employee who has use of the car pays a Benefit in Kind tax based on the car's list price and CO2 emissions. The BIK system heavily incentivises low-emission vehicles, making electric cars the clear winner for tax efficiency.
The BIK calculation multiplies the car's list price (the manufacturer's recommended retail price when new, including options, regardless of what you actually paid) by a percentage determined by CO2 emissions. For 2025/26, the rates range from 2% for zero-emission vehicles to 37% for the highest emitters. For example, a petrol car with CO2 emissions of 130g/km has a BIK rate of around 33%. On a car with a £35,000 list price, that is a BIK of £11,550, costing a 40% taxpayer £4,620 per year in income tax alone. The company also pays Class 1A NI of 13.8% on the BIK value.
Capital allowances on company cars depend on emissions. Zero-emission cars qualify for 100% First Year Allowance, meaning the full cost is deducted from profits in year one. Cars with CO2 emissions up to 50g/km get 18% writing-down allowance per year, and cars over 50g/km get only 6%. This dramatically favours electric vehicles for companies looking to minimise their tax liability.
Leasing is an alternative to purchase. Lease payments are generally deductible, but for cars with CO2 emissions over 50g/km, only 85% of the lease cost is deductible (a 15% restriction). Zero and low-emission vehicles do not face this restriction, making leasing fully deductible.
The fuel benefit is a separate trap. If your company pays for private fuel in a company car, there is an additional fuel benefit charge. For 2025/26, the fuel benefit multiplier is £27,800, multiplied by the same BIK percentage as the car. For a car with a 33% BIK rate, the fuel benefit would be £9,174, costing a 40% taxpayer £3,670 in additional income tax. Unless you drive substantial private mileage, the fuel benefit is almost never worth accepting.
For most small company directors who drive fewer than 10,000 business miles per year, using a personal car and claiming mileage at 45p per mile is usually more tax-efficient than a company car. The exception is electric vehicles, where the 2% BIK rate makes company ownership very attractive.
Real-World Examples
Electric company car
A director's company purchases a Tesla Model 3 with a list price of £43,000. The BIK rate for 2025/26 is 2%, giving a BIK of £860. As a 40% taxpayer, the director pays £344 per year in income tax. The company claims 100% First Year Allowance on the purchase price, reducing CT by £10,750.
Petrol company car
The same company considers a BMW 3 Series petrol with a list price of £40,000 and CO2 of 140g/km. The BIK rate is approximately 34%, giving a BIK of £13,600. At 40%, the director pays £5,440 per year in tax, plus the company pays £1,877 in Class 1A NI. Capital allowances are restricted to 6% per year.
Personal car with mileage claims
Rather than a company car, a director uses her personal Audi and claims 45p per mile for 8,000 business miles per year. This gives a tax-free reimbursement of £3,600 with no BIK, no P11D, and no employer NI. For moderate mileage, this is often more tax-efficient than a company car.
Common Mistakes to Avoid
- Accepting company-paid private fuel without calculating the fuel benefit charge, which is almost never worthwhile for typical private mileage.
- Using the price actually paid for the car rather than the manufacturer's list price when calculating BIK - HMRC always uses the list price including optional extras.
- Not realising that capital allowances on high-emission cars are restricted to 6% per year, meaning a £30,000 petrol car takes many years to fully deduct.
- Failing to keep a mileage log distinguishing business from private use, which HMRC requires to support any company car arrangement.
Frequently Asked Questions
Is a company car or mileage allowance more tax-efficient?
For petrol and diesel cars, mileage allowance at 45p per mile is usually more efficient for directors doing moderate mileage (under 10,000 miles). For electric cars, the 2% BIK rate makes company ownership very attractive. Run the numbers for your specific situation comparing annual BIK tax against mileage reimbursement.
What is the BIK rate for electric company cars in 2025/26?
The BIK rate for zero-emission electric cars is 2% of the list price in 2025/26. It rises to 3% in 2026/27 and 4% in 2027/28. Even with these increases, electric cars remain far more tax-efficient than petrol or diesel company cars.
Can my company lease a car for me?
Yes. Lease payments are deductible for the company. For cars with CO2 emissions over 50g/km, a 15% restriction applies, meaning only 85% of the lease is deductible. Zero and low-emission vehicles have no restriction. You still pay BIK tax on the car's list price regardless of the lease payment amount.
Do I have to pay BIK on a company car I only use for business?
If the car is genuinely available only for business use and you do not use it privately at all (including commuting), there is no BIK. However, HMRC is sceptical of this claim and requires robust evidence such as a mileage log and proof that the car is kept at business premises. Most directors have some private use.
Should I buy or lease a company car?
For electric vehicles, purchasing gives 100% First Year Allowance, which is an immediate full deduction from profits. Leasing spreads the deduction over time but requires less upfront capital. For petrol or diesel, leasing avoids the slow 6% writing-down allowance but has the 15% restriction on high-emission vehicles.
Source: HMRC Employment Income Manual EIM23000 onwards - Car benefit, and Capital Allowances Act 2001 s45D-45DA
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