Tax efficient company car choices for directors

Outright purchase. In this case, your company owns the car and can claim the cost as a capital asset. Your personal use then becomes a benefit in kind (BiK), taxed depending on the vehicle’s emissions. You must include this in your self-assessment tax return for the year. Your company, as your employer, will also pay National Insurance Contributions on the BiK. 

 

If the car is a new fully electric vehicle (EV) it currently qualifies for 100% first-year allowance. This means you can deduct the whole cost from your company profits straight away. The BiK tax for personal use is 4% this year and 5% in 2027/28. For petrol or diesel cars you can only claim writing down allowances (WDA), depending on their CO2 emissions. The tax you pay will depend on emissions up to 37% of the total BiK value. 

 

Lease and finance arrangements. An increasingly popular alternative is to lease or finance your car through your company. The company pays the costs but does not own the asset. Normally, you can deduct lease payments (and 50% of the VAT) from your profits before paying Corporation Tax. However, if the vehicle’s emissions are high,15% of lease cost may not be allowable. Your personal use will still be subject to tax as a BiK. 

 

Claiming mileage. You may also want to consider buying and running your car personally. You can claim mileage at 45p per mile for the first 10,000 miles of business use. Your company deducts your mileage claims from company profits before tax and extra personal tax as a BiK won’t apply. 

 

A company loan. Your company could lend you money to buy a car, but it is treated as a BiK. The loan is not an allowable expense to reduce the company’s Corporation Tax. 

 

Currently, the most tax efficient option is for your company to buy a new EV outright. The full purchase price can immediately reduce Corporation Tax liabilities. The tax you will pay as a BiK is low and the company can also claim running costs. 

 

Depending on your business, an EV may not work for you. For petrol and hybrid vehicles a personal purchase is then more tax efficient. Your mileage claims are allowable company expenses. 

 

If maintaining your cashflow is more important, the regular monthly payments of a lease or finance option may be better. 

 

Your company car checklist 

Before you decide what to do about your next company car, here’s a checklist of things to consider.