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ExpensesUpdated 2026-02-12

Can I buy a car through my company?

Quick Answer

Yes, but if you use it personally, you'll pay Benefit in Kind (BIK) tax based on the car's list price and CO2 emissions. Electric cars have the lowest BIK (2% in 2024/25).

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Detailed Explanation

Company car options

1. Company buys car, you use it personally

- Company claims capital allowances (depends on emissions) - You pay Benefit in Kind tax on personal use - BIK = list price × CO2 percentage × your tax rate

BIK rates 2024/25

- Electric (0g/km): 2% - 1-50g/km: 2-14% depending on range - 51-54g/km: 15% - 55-59g/km: 16% - Each 5g/km adds 1% up to 37% maximum

Example (petrol car)

- List price: £30,000 - CO2: 130g/km (BIK rate: 33%) - BIK value: £9,900 - Tax for higher rate taxpayer: £3,960/year

Example (electric car)

- List price: £40,000 - BIK rate: 2% - BIK value: £800 - Tax for higher rate taxpayer: £320/year

2. Use personal car, claim mileage

- Claim 45p/mile (first 10,000) then 25p/mile - No BIK tax - Often more tax-efficient for petrol/diesel

Capital allowances for company cars

- Electric (0g/km): 100% first year (via Full Expensing) - Under 50g/km: 18% Writing Down Allowance - Over 50g/km: 6% Writing Down Allowance

Recommendation

Electric company cars are extremely tax-efficient. Petrol/diesel are often better owned personally with mileage claimed.

Source: HMRC Company Car Tax Rates 2024/25

Real-World Examples

Small Business Owner with High Mileage

Sarah runs a marketing consultancy and travels frequently to client meetings. She buys a hybrid car through her company with a list price of £40,000 and CO2 emissions of 40g/km (BIK rate 11%). Her personal BIK value is £4,400, which affects her personal tax liability.

Electric Car for City Driving

David owns a software development company and purchases an electric car for £35,000 for his occasional commute and city driving. With the 2% BIK rate on electric vehicles, his annual BIK value is only £700, making it a tax-efficient choice.

Director Choosing Between Car Allowance and Company Car

Emily is deciding whether to take a company car or a car allowance. A car allowance of £6,000 per year is fully taxable as income. She estimates the BIK on a suitable company car would be less than £3,000 (considering her tax rate), making the company car a potentially better option after considering running costs.

Common Mistakes to Avoid

  • Failing to accurately declare personal mileage, leading to inaccurate BIK calculations and potential HMRC penalties.
  • Assuming all company car expenses are deductible without considering the private use portion, which isn't allowable for corporation tax.
  • Ignoring the impact of company car Benefit in Kind on your personal tax band and potential loss of child benefit or other income-related benefits.
  • Forgetting to inform HMRC of any changes to the company car, such as a new vehicle or a change in personal usage patterns, which affects the BIK calculation.

If my company buys a used car, is the BIK calculated differently?

No, the Benefit in Kind is still based on the *original* list price of the car when new, not the price the company paid for it used, and the CO2 emissions at the time of original registration. This can make used cars less attractive from a BIK perspective.

What happens if I only use the company car for business purposes?

If you can prove *no* private use whatsoever, including commuting, there is no Benefit in Kind. However, this is extremely difficult to prove to HMRC and requires meticulous record-keeping, often including having a different car for private journeys.

Are there any alternatives to providing a company car that are more tax-efficient?

Potentially, yes. Paying employees a mileage allowance for using their own cars for business trips can be more tax-efficient as the company claims the mileage, and the employee receives tax-free mileage allowance up to HMRC's approved rates (45p per mile for the first 10,000 business miles, then 25p).

How does VAT work when buying a car through my company?

Generally, you can only reclaim the VAT on a car if it's used *exclusively* for business purposes and isn't available for private use. This is very difficult to demonstrate to HMRC for most small business owners.

Practical Tips

  • Keep a detailed mileage log separating business and private mileage to accurately calculate the proportion of private use.
  • Compare the cost of a company car, including BIK, against the cost of a personal car and claiming mileage allowance to make an informed decision.
  • Consider an electric or hybrid vehicle with low CO2 emissions to minimize the BIK liability and potential fuel costs.
  • Review your company car policy annually to ensure it aligns with your business needs and is the most tax-efficient option available, taking into account new car models and BIK rates.

Related Questions

What is the mileage allowance?

The Approved Mileage Allowance Payment (AMAP) is 45p per mile for the first 10,000 business miles and 25p per mile thereafter. This covers fuel and running costs.

What is a Benefit in Kind (BIK)?

A Benefit in Kind is a non-cash perk provided by your company, like a company car or private medical insurance. You pay income tax on the value, and your company pays Class 1A NI at 15%.

Can I claim working from home expenses?

Yes. Your company can pay you £6/week (£312/year) tax-free for working from home. Alternatively, you can claim a proportion of actual home costs based on business use.

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