If you’re thinking of putting a vehicle through a limited company there are several key tax considerations around company cars, benefit-in-kind (BIK) tax, allowable expenses, and VAT treatment.

1. Ownership: Company vs Personal

• Company-owned vehicle: The company purchases and owns the vehicle. Treated as an asset on the balance sheet.
• Personally-owned vehicle used for business: You can claim mileage allowance at 45p per mile for the first 10,000 business miles in a tax year, 25p thereafter.

If the Vehicle Is Owned by the Company

Pros:

• The company can claim capital allowances (although these may be minimal).
• Running costs (insurance, repairs, fuel) can be business expenses.
• VAT recovery possible (with restrictions).

Cons:

• If you (as a director or employee) use the car personally, it becomes a Benefit in Kind (BIK) — and is taxable personally.

2. Benefit-in-Kind (BIK) Tax

If the company provides a car that’s used for any personal use, it’s considered a benefit and:

• Employee pays income tax (through PAYE)
• Company pays Class 1A National Insurance Contributions (NICs) on the BIK value

BIK is calculated based on:

• Car’s list price (P11D value) (including VAT, delivery, and optional extras)
• CO₂ emissions (lower CO₂ = lower BIK rate)
• Fuel type (e.g., electric vehicles have much lower BIK rates)

Example BIK Rate 2025/26:

• Fully electric car: 3%
• Hybrid (with 0-50g/km): 3%-15% depending on electric range
• Petrol/diesel: 16%-37%

The higher the emissions and list price, the greater the BIK charge.

3. Fuel Benefit

If the company also pays for private fuel, there’s an additional taxable benefit — even if only a small amount is used privately.

Avoid paying for private fuel from the company unless you reimburse all private mileage at HMRC rates.

4. Capital Allowances

• For low-emission vehicles, you may claim:
  • 100% first-year allowance (FYA) for zero-emission cars
  • 18% writing down allowance (WDA) for cars with CO₂ ≤ 50g/km
  • 6% WDA for cars with CO₂ > 50g/km

Cars do not qualify for the Annual Investment Allowance (AIA).

5. VAT Considerations

• Lease cars: 50% of VAT on lease payments can be reclaimed if there’s personal use.
• Purchase: VAT can only be reclaimed if the vehicle is used 100% for business, which is rare (e.g. pool cars, taxis).

If You Use Your Personal Car for Business

You can claim mileage allowance instead of putting the car through the company.

HMRC Approved Mileage Rates (as of 2025):

• 45p/mile for first 10,000 business miles/year
• 25p/mile thereafter

No BIK is due if mileage is reimbursed at or below HMRC rates.

This is often more tax-efficient than running a company car, especially for higher-emission vehicles.

Final tips:

• If you’re considering a company car, go electric or ultra-low emissions to reduce BIK tax.
• For most directors of small limited companies, using a personal car + mileage claim is more tax-efficient unless it’s an electric company car.
• Keep accurate mileage logs and all receipts for any reimbursements.