Should I buy a car personally or via my company?

A common misconception is that buying a company car can save a director or employee vast amounts of tax. The reality is far more complicated than a simple yes or no. There are many moving parts to these calculations, and it really depends on many factors.

The key factors to consider:

Private use;
Type of vehicle;
Fuel;
Higher rate taxpayer;
Purchase or lease;
Dividend & salary strategy.

Private use of the vehicle

If there is going to be private use, then there will be a benefit in kind (a non-cash benefit), and the benefit in kind will be subject to income tax.

Private use, for example, would be travelling to your office from your home or driving the kids to football practice.

What is a P11D form and Class 1A national insurance?

Benefits in kind (BIK) are subject to income tax on the director/employee @ 20%/40%/45%, but no Class 1 national insurance contributions are due on the BIK’s to the employee. The BIK is considered additional income and will be included in your tax return, which may affect your tax code. The cost will depend on your other income and may push other income, like dividends, into higher tax bands.

The benefit in kind is also subject to Class 1A national insurance contributions paid by the company @ 13.8% ( 15% for 2025/2026)

Class 1 A tax must be included on a form called a P11D. The form records the benefits paid by the company to each employee and the company as a whole. The forms must be submitted to HMRC by 6 July each year, and the Class 1A tax must be paid by 22 July.

The Class 1A is calculated by multiplying the total benefits in the year by 13.8% (15% for 2025/2026)

Benefits in kind can be payrolled monthly to avoid completing a tax return just for benefits and from April 2026 it will become mandatory to payroll almost all benefits in kind.

How is this benefit in kind calculated?

This depends on what you are going to buy/lease:

Diesel car;
Petrol car;
Hybrid car;
Electric car (zero emissions);
Van.

The type of vehicle will make a massive difference to the amount of tax you will pay on any private use.

Calculation

You multiply the list price plus any accessories by a fixed %.

The % is calculated based on the CO2 emissions of the car. ( nb these can change every year)

Example 1:

For a petrol car with a list price of £23,000 and Co2 rating of 152, then the % used would be 35% (2024-2025)

The benefit in kind for the car would be £8,050, and you would pay income tax on £8,050, and the company would pay £1,110.90 Class 1A

Example 2:

An electric Porche Taycan – list price £83,000 and a Co2 rating of 0 and the % would be 2% for 2024/2025 (3% for 2025/2026). There would be no benefit in kind to pay on this car in this tax year.

Important to note that the % is set each year and is subject to change by the chancellor. They can change during ownership, and you will pay the prevailing rate.

Fuel for private use – who is going to pay?

If the company pays for fuel consumed for the employee’s private journeys, then there will be another benefit in kind subject to tax.

This is using the same %, but this time, you use £27,800 2024/2025 for all cars. (lower for vans)

This often means it is cheaper to pay for your private fuel yourself as it is greater than the cost of the fuel itself. Must pay for 100% of the private fuel; otherwise, BIK will occur.

Currently, electricity is not a fuel, and employees can charge their cars at work without incurring a P11D benefit.

How are you going to buy it?

Whatever you decide to buy, you will need to pay for it, and this will affect the overall tax cost or savings.

Purchase the car by the company

You will need to fund the purchase, and any loan interest suffered will be tax-deductible.

You will not be able to recover any of the VAT suffered on the purchase.

You may be able to claim capital allowance on the vehicle cost, including VAT. How you recover the cost via the company depends again on what you buy.

First-year allowances (FYA)’s are available on new & unused cars with C02 ratings of less than 50g/Km. There is a risk that the benefit in kind % increases, and you end up paying increased income tax on the benefit and class 1A. ( NB what FYA are available changes regularly).

The company will pay for all associated costs relating to the car, including insurance and repairs. These expenses are tax-deductible.

Operating lease paid by the company

50% of the VAT is recoverable on the lease with private use, and the monthly charge is tax-deductible and will reduce your tax due. Higher emission car costs are restricted to 85% recoverability.

You don’t own the vehicle, so the relief is not via capital allowances and is instead as the payments are made.

Paying for the vehicle via the company will reduce the profits available to be paid by dividends, and the effect on your dividend and salary strategy needs to be considered.

Pay for Personally

You cannot recover the VAT, and the vehicle payments will need to come out of taxed income. Any loan interest is not tax-deductible.

All costs are paid personally, and only mileage claims can be made on the business mileage.

Therefore the highest rate of tax you suffer will often make a big difference in this calculation if you need to withdraw more money from the company. Again your dividend and salary strategy is going to be an important consideration in considering the affordability.

As you can see it is not a simple area of business planning and my recommendation is that you discuss this carefully with your accountant and financial adviser; as often there are effects on both your business and personal cashflow plans whatever route you choose.

Please note: This is not meant to constitute professional advice. It is generic guidance only –please seek specific advice for your circumstances.

The calculations and rates were correct when the blog was written and may have subsequently changed. They should not be relied upon.

Tax

Company Cars