Emissions decide it
Whether a car belongs in your limited company comes down to one variable before all others: emissions. A new electric car bought through the company earns a 100% first year allowance against corporation tax and a benefit in kind rate of just 4% of list price in 2026/27. A petrol or diesel car attracts a benefit rate of up to 37%, which usually wipes out every saving the company route offers. So the honest answer is short: electric through the company often works, petrol or diesel usually belongs to you personally with mileage claimed back.
This guide walks the whole decision: the benefit in kind cost, the capital allowances on buying, the rules on leasing, what VAT you can and cannot reclaim, charging and running costs, and a worked example that puts pounds on it. Figures are for the 2026/27 tax year.
Key takeaways
- Electric works, combustion mostly does not. EV benefit in kind is 4% of list price in 2026/27 against up to 37% for petrol and diesel.
- The 100% first year allowance has a deadline. New zero-emission cars bought by 31 March 2027 can be written off in full against profits in year one.
- Leasing has its own maths. Rentals are deductible, half the VAT is reclaimable, but cars over 50g/km lose 15% of the deduction.
- VAT on a purchase is usually blocked. Any private use, including commuting, prevents reclaiming VAT on the purchase price.
- The personal car is the benchmark. Owning the car yourself and claiming 45p a mile is the option every company car has to beat.
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Start with the benefit in kind, because it never stops
Capital allowances are a one-off saving. The benefit in kind is a charge that arrives every single year you have the car, so it decides the decision. If the company car is available for any private use, and for a director it almost always is, you pay income tax on a percentage of the car’s list price, and the company pays Class 1A National Insurance at 15% on the same amount.
From our casework
Fifteen minutes on the phone usually settles which side of the line a car falls. Ryan R. wrote in August 2024 after exactly that conversation: “Very informative and answered all of my questions.” Emissions, list price, how much private use there really is, and the shape of the answer is visible before anybody signs anything.
★★★★★ Ryan R. in his own words, Google review, August 2024
For 2026/27 a fully electric car sits at 4% of list price, rising by about one percentage point a year to roughly 9% by 2029/30, a published path that lets you cost the whole ownership period in advance. Petrol and diesel cars are set by emissions, up to 37%, with a 4% surcharge on most diesels. If the company also pays for private fuel in a combustion car, a separate fuel benefit applies, worked out on a fixed £29,200 figure for 2026/27, and it is poor value for almost everyone. Reimbursing the company for private mileage removes it.
The emissions question is answered before any of the others are worth asking.
Buying the car: capital allowances
When the company buys a car outright or on hire purchase, it does not deduct the price as an expense. It claims capital allowances, and the rate depends on emissions:
- 100%
New zero-emission car: 100% first year allowance, the full cost against profits in the year of purchase, for expenditure up to 31 March 2027.
- 18%
Used electric car, or any car up to 50g/km: main rate writing down allowance of 18% a year on a reducing balance.
- 6%
Car above 50g/km: special rate of 6% a year, which recovers the cost painfully slowly.
The first year allowance is the headline. A company in the corporation tax marginal band buying a £40,000 new electric car saves £10,600 of tax in year one at the 26.5% effective marginal rate, or £7,600 at the 19% small profits rate. Two catches: the car must be new, not used, and when the company later sells it, the sale proceeds are taxed back as a balancing charge, so the relief is really a deferral of tax on the difference between cost and resale value. On hire purchase the same allowances apply and the interest is deductible on top.
Leasing the car instead
On a lease the company never owns the car, so there are no capital allowances. Instead the monthly rentals are a deductible expense as they are paid, which spreads the relief across the contract and takes the resale-value risk off your balance sheet. One restriction: if the car’s emissions exceed 50g/km, 15% of the rental deduction is disallowed. Electric cars escape it entirely.
Lease or buy is then a cash flow and risk question more than a tax one. Buying a new EV front-loads the relief through the first year allowance and leaves you owning a depreciating asset. Leasing smooths the cost, hands depreciation risk back to the leasing company, and reclaims half the VAT along the way. Both routes carry the same benefit in kind, so the running personal cost is identical.
What VAT you can actually reclaim
On a purchase, VAT is blocked unless the car is used exclusively for business, and HMRC reads exclusively strictly: commuting counts as private use, and a sole director rarely gets there. On a lease the position is kinder: 50% of the VAT on the rentals is reclaimable even with private use, and VAT on a separately itemised maintenance element is reclaimable in full. VAT on repairs, servicing and other running costs paid by the company is generally recoverable where the car has business use. The detail is worth confirming against your own facts, which is what our VAT service is for.
Commuting counts as private use, and that is usually what blocks the VAT.
Charging, fuel and running costs
Running costs the company pays, insurance, servicing, repairs, road tax, are deductible for the company, and for a company car they do not create an extra benefit beyond the car charge itself. Electricity has its own friendly rules: charging at the workplace creates no benefit, a chargepoint the company installs at your home for a company car creates no benefit, and chargepoint equipment carries its own 100% first year allowance to 31 March 2027. If you pay for charging personally, the company reimburses business miles at HMRC’s advisory electric rate, which is reviewed through the year, so check the current figure when you set the reimbursement.
The benchmark: keeping the car personal
Every company car has to beat the simple alternative: you own the car, you pay for it from income you have already taken as salary or dividends, and the company reimburses business journeys at the approved mileage rates of 45p a mile for the first 10,000 business miles and 25p after that, tax free and deductible for the company. For a petrol or diesel car with real private use, this almost always wins, because it avoids the benefit in kind entirely. For a new electric car, the company route usually pulls ahead thanks to the first year allowance and the 4% rate. That is the whole decision in two sentences.
We will tell you when the plain option wins. Charles V., who runs an online business, wrote in July 2020 that the value was in being shown “alternatives to save you money”, and sometimes the alternative to a company car is not a cheaper company car. It is no company car at all, your own vehicle, and 45p a mile. That advice costs us a capital allowances claim and saves you a benefit charge, which is the correct trade for both of us.
★★★★★ Charles V. in his own words, Google review, July 2020
Owning it yourself avoids the benefit charge completely, which is a hard thing to beat.
A worked example: £40,000 new electric car, 2026/27
The company buys the car new for £40,000. With profits in the marginal band, the 100% first year allowance saves £10,600 of corporation tax in year one. The benefit in kind is 4% of £40,000, so £1,600: a higher-rate director pays £640 of income tax and the company pays £240 of Class 1A. Total recurring cost around £880 a year against a five-figure year-one tax saving, before running costs.
Now the same money on a petrol car at a 30% benefit rate. No first year allowance, only 6% a year if emissions are high. The benefit is £12,000: £4,800 of income tax for a higher-rate director and £1,800 of Class 1A for the company, every year. That is the gap in one comparison, and it is why the emissions question comes first.
New electric
£40,000 list price
Petrol at 30%
£40,000 list price
Seeing the two columns side by side is what makes the decision easy, and it is worth taking twice if you need to. Eden T. spoke to us twice in June 2024 before deciding anything, and said we “made sure we understood everything”. With a car that matters more than usual, because you are not agreeing to a one-off cost. You are agreeing to a benefit charge for every year you keep it.
★★★★★ Eden T. in her own words, Google review, June 2024
A company car is also a payroll and reporting event: the benefit goes on the P11D for now and moves into payrolling from April 2027, which we handle inside our payroll service, and the capital allowance claim lands in the company’s corporation tax return.
The service that handles this
Both routes costed on your figures, before the order goes in
List price, emissions, real mileage and your profit position, run through the company route and the personal route side by side, with the answer in writing.
Get the car decision plannedTwo-minute car check
Company car or personal car: which way is your answer leaning?
What is the car you have in mind?
How much private use will there be?
Roughly how many business miles a year?
Would the company buy it outright, on hire purchase, or lease it?
Where do the company profits sit this year?
Has anyone costed the personal ownership route against it?
Have a specific car in mind already? Send us the list price and the emissions instead.
Cost my car both waysYour result
Your recommendation appears here.
Cardiff, Newport and Bristol, and UK-wide through our Virtual Finance Office with secure digital onboarding.
Frequently asked questions
Is it worth buying a petrol or diesel car through my company?
Rarely. Benefit in kind rates up to 37% of list price, plus 15% of any lease deduction disallowed above 50g/km and slow 6% capital allowances, usually cost more than owning the car personally and claiming 45p a mile for business journeys.
Should I lease or buy an electric car through the company?
Buying new front-loads the tax relief through the 100% first year allowance, available to 31 March 2027, but leaves you carrying resale value risk. Leasing spreads the cost, reclaims 50% of the VAT and hands depreciation risk back. The benefit in kind is the same either way, so it is a cash flow and risk decision.
Can my company reclaim VAT on a car?
On a purchase, only if the car has no private use at all, which is rare for a director. On a lease, 50% of the VAT on rentals is reclaimable even with private use, and VAT on a separate maintenance element in full.
What happens when the company sells the car?
If a first year allowance was claimed, the sale proceeds are brought back into the tax computation as a balancing charge, so tax is effectively paid on the difference between what the relief covered and what the car sold for. The relief is generous but partly a deferral.
Does a used electric car get the 100% allowance?
No. The first year allowance applies to new and unused zero-emission cars only. A used EV goes into the main pool at 18% a year on a reducing balance, which is still far better than the 6% rate for high-emission cars.
Keep reading
The three guides a company car touches once you have decided.
The charge
What counts as a benefit in kind for a director, and what is exempt.
Benefits in kind explained →The form
Where the car benefit is reported, and the July dates that go with it.
P11D for directors →The rate
Why a deductible pound is worth 26.5p inside the marginal band.
Marginal relief explained →Get the car decision costed before you commit
Total Books Accountants Ltd is a regulated, founder-led practice of limited company accountants, led by Buhir Rafiq with more than 30 years in accounting and finance. We are AAT licensed, an HMRC registered tax agent, a Companies House authorised agent and a Xero Certified Advisor, working from offices in Cardiff, Newport and Bristol and UK-wide through our Virtual Finance Office with secure digital onboarding.
If a car is on your shopping list this year, book a free 15-minute business call before you order it, and we will show you which route keeps more of your money.
Before you order
Fifteen minutes now beats four years of the wrong benefit charge
Send the list price and the emissions figure. We will tell you what the company route costs you each year, what the personal route costs, and which one wins on your mileage.
This guide is general information, not advice for your specific situation. Rates, allowances and VAT treatment change and depend on the facts, including how the car is used. Completing your returns remains the responsibility of the taxpayer; please take professional advice before acting.
