When buying a new car as a director of a limited company, a commonly asked question is, “Can I put this through my company?” There is no straightforward answer, and the best solution will largely depend on the following three factors:
- Is the car going to be used for both business and personal purposes?
- What are the CO₂ emissions of the car?
- What is the list price of the vehicle?
Once you know the answers to these questions, you’re on your way to calculating the most tax-efficient way to acquire the car using the options presented in this article.
Pool Car
From a tax perspective, the most beneficial treatment of a car purchase is as a pool car. However, the requirements for a vehicle to be treated as a pool car are stringent. A vehicle cannot qualify as a pool car if there is any private usage or if the car is kept at residential premises overnight. HMRC provides detailed guidance on pool cars in the Employment Income Manual (Sections 167 and 168), which can be found here.
In theory, a pool car would not be “your car” but would be available for all employees at the company to use equally. If the vehicle meets these parameters, there is no Benefit-in-Kind (BIK) charge on employees, and consequently, no Class 1A National Insurance is due. Additionally, the company can claim capital allowances on the vehicle (based on the CO₂ emissions) and reclaim VAT on related expenses if it is VAT registered.
Buying the Vehicle in the Company’s Name – Electric Vehicles
The government has been actively promoting the adoption of electric cars. As of the 2025/26 tax year, fully electric vehicles will continue to benefit from lower BIK rates:
- BIK rates for electric vehicles will increase from 2% in 2024/25 to 3% in 2025/26, with a further rise to 5% by 2027/28.
- For example, if an employee in the basic rate tax band is provided with an electric car with a list price of £50,000, the taxable benefit value for 2025/26 would be £1,500, resulting in a personal tax liability of £300 and a Class 1A National Insurance charge to the company of £207.
Additionally, companies can claim 100% First Year Allowance (FYA) on brand-new electric vehicles until 31 March 2025 for corporation tax purposes, meaning the full cost of the vehicle can be deducted in the year of purchase. For second-hand electric vehicles, or if the company has already utilised its full annual investment allowance limit, writing down allowances at 18% are available.
Buying the Vehicle in the Company’s Name – Non-Electric Vehicles
If a non-electric vehicle is purchased and registered in the name of a limited company, it becomes a business asset, and the company can claim capital allowances based on the car’s CO₂ emissions:
- Vehicles with CO₂ emissions under 50g/km: Claim 18% writing down allowance (WDA) annually.
- Vehicles with CO₂ emissions over 50g/km: Claim 6% WDA annually.
However, if the vehicle is used for personal purposes, a Benefit-in-Kind (BIK) charge will arise. The BIK is calculated using the car’s list price and an appropriate percentage, which depends on the vehicle’s CO₂ emissions. As of 2025/26, the rates for cars with emissions over 54g/km start at 15%, increasing by 1% for every additional 5g/km, up to a maximum of 37%.
For cars provided with private fuel, the private fuel benefit is calculated using a flat rate of £27,800 for 2025/26, multiplied by the car’s BIK percentage.
Drawing Money Out of the Company and Buying the Vehicle Personally
If you choose to buy the vehicle personally, you’ll avoid any BIK charges. However, unless you have a director’s loan account balance that the company owes you, you’ll need to either use personal funds or draw additional salary or dividends from the company to finance the purchase. While you won’t be able to claim capital allowances or motor expenses on the vehicle against corporation tax, you can still claim a mileage allowance for business miles:
- 45p per mile for the first 10,000 business miles, and
- 25p per mile thereafter.
The company can claim a tax deduction for the mileage allowance paid, and if VAT registered, it can reclaim VAT on the fuel portion of the allowance.
Other Factors
The treatment of vans is different for both BIK and corporation tax purposes. In some cases, a vehicle classified as a van for tax purposes may be a more tax-efficient alternative to a car.
Deciding whether to buy a car personally or through your company depends on your circumstances, including the car’s emissions, its intended use, and your company’s cash position. Electric vehicles currently offer significant tax advantages, making them an attractive option for many directors.
At Plus Accounting, we can help you evaluate the best option based on your individual circumstances, ensuring you maximise tax reliefs and minimise costs. Contact us today for expert advice on buying your next vehicle.
Author: Sam Baldwin, Business Services Manager, Plus Accounting
Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site
Date Published : 24 October 2019
Last Updated : 15 January 2025