Putting a Car Through a Company With Personal Use: Is It Tax Efficient?
For many UK business owners and directors, the idea of putting a car through the company sounds appealing. After all, if the company pays for the vehicle, insurance, servicing and running costs, surely that must save tax?
As with most things in UK tax, the answer is: it depends.
In this guide, we explain how company car Benefit in Kind (BIK) works, how the tax is calculated, and when putting a car through your company can be a smart move – and when it can be an expensive mistake.
What Is a Company Car Benefit?
A company car is a vehicle that is owned or leased by an employer and made available to an employee or director for private use, including commuting.
In the UK, this private use is taxed as a Benefit in Kind (BIK).
The value of the benefit is not based on what the car costs the company each year. Instead, it is calculated using a statutory formula that takes into account:
The car’s list price (including optional extras)
The vehicle’s CO₂ emissions
The fuel type (electric, hybrid, petrol or diesel)
The higher the emissions, the higher the tax charge for:
The employee or director (income tax), and
The company (Class 1A National Insurance)
How Is Company Car Benefit Calculated?
1. The List Price
The starting point is the car’s list price when new, including:
Delivery charges
Any optional extras
A key pitfall we see time and time again is assuming the benefit reduces as the car gets older. It doesn’t.
The original list price is used every year, regardless of depreciation or resale value.
2. Employee Capital Contributions
If the employee or director contributes towards the cost of the car, this can reduce the list price by up to £5,000.
Any contribution above £5,000 is ignored for BIK purposes.
3. The Appropriate Percentage (CO₂ and Fuel Type)
The list price is multiplied by the appropriate percentage, which is determined by:
CO₂ emissions (grams per kilometre)
Fuel type
For hybrids, the electric-only range
The 2025/26 BIK percentages for petrol and hybrid cars can be found here - https://www.gov.uk/guidance/company-car-benefit-the-appropriate-percentage-480-appendix-2
Diesel Cars
Diesel vehicles suffer a 4% surcharge, capped at a maximum BIK rate of 37%.
4. Part-Year Availability
If the car is only available for part of the tax year, the benefit is pro-rated.
However, if the car is unavailable for less than 30 consecutive days, no adjustment is allowed.
Company Car BIK Calculation Example
Let’s look at a simple example.
Petrol car with CO₂ emissions of 120g/km
List price (including extras): £40,000
BIK percentage: 30%
No employee capital contribution
Car available all year
Director is a higher-rate taxpayer (40%)
Step 1: Calculate the taxable benefit
£40,000 × 30% = £12,000
Step 2: Employee income tax
£12,000 × 40% = £4,800 per year
(or £400 per month through payroll)
Step 3: Employer Class 1A NIC
£12,000 × 15% = £1,800
So while the company pays for the car, the combined tax cost is high.
How Is the Benefit Reported?
The company car benefit is reported either:
Through payroll, or
On a P11D after the end of the tax year
For the employee or director, the benefit is treated as additional employment income, taxed at:
20%
40%, or
45%
The employer must also pay Class 1A National Insurance at 15% (effective from 6 April 2025).
Should You Put a Car Through Your Company?
At Surrey Hills Tax, we’re often asked whether putting a car through a company makes sense when there is personal use.
The honest answer is: it depends on the type of car.
When It Can Be Tax Efficient
Company cars can be very attractive where you are looking at:
Electric vehicles, or
Hybrids with CO₂ emissions of 50g/km or less
In these cases:
BIK rates are extremely low
The company can pay for all vehicle costs, including:
Purchase price
Servicing
MOT
Insurance
The company can claim capital allowances, reducing corporation tax
50% of the VAT on the vehicle can usually be reclaimed (restricted due to private use)
It is crucial that:
The car is owned or leased by the company
All invoices are addressed to the company
The arrangement is set up correctly from day one
A Major Warning on Fuel
While the car itself can be tax-efficient, company-paid fuel for private use is a definite no.
The fuel benefit charge is:
Very high
Often far exceeds the actual fuel cost
A common and expensive mistake
Instead:
Do not put fuel through the company for private use
Only claim business mileage at 45p per mile
The Bottom Line
Putting a car through your company can be very tax efficient, but only in the right circumstances. For low-emission vehicles, particularly electric cars, the numbers can work extremely well. For higher-emission petrol or diesel cars, the tax cost often outweighs the benefit.
Getting this wrong can be expensive – but getting it right can save thousands.
If you’re considering a company car and want advice tailored to your situation, Surrey Hills Tax can help you decide whether it’s the right move for you.
Contact Us | Expert Tax Advisors in Surrey
Get in touch:
📧 hello@surreyhillstax.co.uk
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