Company Car Fact Sheet

Financial Year 2025 - 2026

What are the rules around company cars?

When purchasing/leasing a vehicle through your Limited Company there are various tax implications that you need to be aware of.

The first is how this will impact your personal tax position and this depends on the type of vehicle being purchased/leased. The key variables are the vehicle list price and C02 emissions, although other factors are taken into consideration (such as added optional extras). This is covered in more detail below.

Personal Tax

Where your Limited company provides you with a company car made available for personal use a taxable Benefit-In-Kind (BIK) will arise. The benefit is calculated by taking the vehicle list price (plus any optional extras and less any capital contribution capped at £5k) and then applying this value against a percentage which is determined by the vehicle's C02 emissions. Any personally paid running cost contributions will also be deducted from the benefit.

❗Please note that a company car which is parked at your residence will count as a BIK.

💡 Commercial vehicles (such as vans) are treated separately and are not included in the below table - a flat rate benefit charge of £3,960 will apply.

Once the BIK value is calculated a P11D submission will need to be reported to HMRC. The amount calculated is added to your self-assessment and taxable as employment income at the appropriate rate (20/40/45%).

For example, a fully electric car with a list price of £40,000 and optional extras of £1,000 will produce a BIK of £1,230 (3% of £41,000). For a basic rate tax payer this will attract personal tax of £246 (20%). The company will also be liable to pay Class 1A National Insurance which currently stands at 15%. We will instruct you on how/when to make this payment.

Fuel Benefit

Should your company purchase fuel for the company car, it will give rise to another separate benefit in kind. The BIK arising here also uses the percentage determined by the car's CO2 emissions and this is multiplied by a pre-determined charge by HMRC, currently at £28,200. This figure is uprated annually by CPI.

Importantly and unlike the car benefit above, any partial contributions towards the fuel costs do not reduce the taxable benefit. Therefore, we recommend either covering the fuel costs in full or not at all.

Corporation Tax & VAT

The level of corporation tax relief received through capital allowances will depend on the make & model, the approved carbon emissions and whether the vehicle was new when acquired by the company. The relief can vary from full corporation tax relief in the year of purchase (First Year Allowances), to restricted relief on a % basis over a number of years (known as Writing Down Allowances).

Generally, the purchase of a company car will see the company not being able to reclaim the VAT on the purchase. However, when leasing the vehicle, the company will usually be able to claim 50% of the input VAT.

When leasing, the type of tax relief you receive will depend on the type of lease taken out. For example, operating leases do not qualify for capital allowances as your business will never take on the risks and rewards of ownership. As both corporation tax and VAT are determined by the car and purchase arrangement, we recommending speaking to your client manager before purchasing a company vehicle.