Buying a company car through your limited company

Buying a car through your limited company is worth it in one case above all others: a new electric car the business will keep for years. Your company writes the whole price off against its profits in year one, and you pay tax on 4% of the list price. A petrol or diesel car works the other way round, because the relief comes in at 6% a year while the benefit charge costs you and the company thousands, so claiming 55p a mile on your own car is usually cheaper. The 2026/27 arithmetic for all three is below, with what each one does to your cash.

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What counts as a company car, and whose name it goes in

A company car is one your business owns or leases in its own name, and HMRC's definition of a car is wider than you would expect: any mechanically propelled road vehicle. Keeping a business moving is sometimes a literal proposition, and this is the version of it the tax rules watch most closely.

Companies buy cars for client visits, for deliveries, to move goods, or as a benefit for a director. None of that decides the tax. Three details do.

Whose name is on the V5C comes first: the car has to be registered and invoiced to the company, because one in your own name is not a company asset, so there are no capital allowances and no deductible running costs. Then whether it is new, because a second-hand electric car misses the first-year allowance that makes the electric case work. Then whether what you are buying is a car at all: from 6 April 2025 most double cab pickups count as cars for the benefit charge, so a vehicle you think of as a van may now be taxed like one.

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What your company can claim back

Relief comes in two parts: the price of the car, written off against profits over time, and the running costs, deducted as the company pays them.

The price goes through capital allowances, and the rate depends entirely on the car's CO₂ figure:

• 100% in the first year for a car with no tailpipe emissions, bought new and unused. The company deducts the whole price from that year's profits, and this first-year allowance runs to 31 March 2027 for corporation tax.
• 14% a year for a car at 50g/km or less, including a second-hand electric one. It was 18% before April 2026, so older figures overstate it, and it works on a reducing balance: 14% of what is left, not the same amount each year.
• 6% a year for a car over 50g/km. On a £40,000 petrol car that is £2,400 in the first year, and less every year after.

Cars are also shut out of the annual investment allowance and full expensing, which would otherwise give immediate relief on the whole price. That exclusion, more than anything, is why a car is treated worse than a van.

Running costs are simpler, and better news. Maintenance, insurance, and vehicle tax on a company-owned car all come off the company's profits, whichever way the car was paid for.

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You usually can't reclaim the VAT on a car you buy

This is the rule that catches people who have bought a van before. VAT Notice 700/64 puts it plainly: as a general rule, you cannot recover the VAT on the purchase of a car. The exceptions are narrow, and the one that could apply to you is a car used only for business journeys and not available to anyone privately. 'Available' is the hard word: a car parked on your drive overnight is available, whether or not anybody drives it.

In cash, that is about £6,667 of a £40,000 car your company will never see again. A lease is treated more generously, which is why the buy-or-lease comparison is so often stated the wrong way round.

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What the car costs you and your company every year

Once the car is available for private use, which for a director's car it almost always is, you pay income tax on a slice of its list price every year, and your company pays National Insurance on the same amount.

The size of that slice is set by the car's CO₂ emissions: 4% for a car at 0g/km in 2026/27, rising to 5% in 2027/28, and up to 37% for the highest emitters. Multiply the percentage by the list price and you have the amount you are taxed on, at your own rate of income tax. HMRC publishes the percentage for every CO₂ band, and our guide to company car tax rates goes through them in detail.

Your company then pays Class 1A National Insurance on the same figure, at 15% in 2026/27. That is the number most comparisons leave out, and it belongs in yours: it is real money leaving the business every year the car is on the road.

If the company also pays for fuel you use privately, HMRC taxes you on a second benefit, set from a fixed figure and the same CO₂ percentage rather than from what the fuel cost. For most directors, paying for private fuel yourself costs less than the tax does.

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A pool car avoids the charge, but almost no director's car qualifies

A pool car carries no benefit charge at all, which is why it is the first thing people ask about. It also has five conditions, and HMRC is explicit that meeting four of them is not enough. All five have to hold for the tax year:

• More than one employee actually used the car.
• It was available to each of them because of their job.
• No one person used it to the exclusion of the others.
• Any private use was merely incidental to a business journey.
• It was not normally kept overnight near anyone's home.

For a company with one or two directors and one car, the last two are where it falls apart. It is still worth checking rather than assuming, because what is at stake is the entire benefit charge.

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The three routes, side by side on a £40,000 car

Those rates only mean something together, so here is one £40,000 car handled three ways: bought as a new electric company car, bought as a petrol company car at 120g/km, and not bought at all, with the director claiming mileage on their own car.

The figures are illustrative rather than tax advice. They assume a new and unused electric car, a petrol car at 120g/km, which falls in the 30% band for 2026/27, 8,000 business miles a year, income tax at the 40% higher rate, and corporation tax at the 25% main rate. On the 19% small profits rate every deduction is worth less.

The electric car wins on both lines: the whole £40,000 comes off profits in the first year, worth £10,000 of corporation tax, and the benefit you are taxed on is only £1,600. The petrol car loses on both. Its relief arrives at 6% a year, so £2,400 in the first year and less after that, while the £12,000 benefit costs you £4,800 and your company £1,800 for every year you keep the car.

Claiming mileage looks modest in that table, and that is rather the point. HMRC's approved rates are 55p a mile for the first 10,000 business miles, then 25p, up from 45p on 6 April 2026. The payment reaches you tax free, there is no benefit charge, and nothing goes on the company's balance sheet. The catch is paperwork and wear: the mileage has to be logged journey by journey, and the rate has to cover fuel, servicing, insurance, and depreciation on a car you own.

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An electric car still wins, but by less each year

An electric company car is still the cheapest way to put a car through a limited company: 4% of the list price against up to 37%, and the full price off profits in the first year. Three things have changed since early 2025, though, and all three cost money.

• The 100% allowance has an end date, and it needs a new car. It covers expenditure before April 2027, which is 31 March 2027 for corporation tax. A second-hand electric car gets 14% a year instead.
• Electric cars pay vehicle tax. Since 1 April 2025 they have been taxed like any other car: £10 in the first year, then the £200 standard rate. A car with a list price over £40,000 also pays the expensive-car supplement of £440 a year for five years from the second licence, and for a zero-emission car registered on or after 1 April 2025 that threshold is £50,000.
• A mileage charge starts in 2028. From 1 April 2028, electric vehicle excise duty adds 3p a mile for battery electric and hydrogen fuel cell cars, and 1.5p a mile for plug-in hybrids. If you are signing a four-year agreement now, that lands partway through it.

None of this reverses the decision. It does mean the running costs you budget for in the fourth year are not today's, and that the supplement threshold is worth checking against the exact list price, options included, before you order.

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Leasing instead of buying

Leasing trades the allowances for a deduction on the rentals. Your company never owns the car, so there are no capital allowances at all; instead it deducts what it pays, as it pays it. For a car over 50g/km HMRC disallows 15% of each rental, so the company deducts 85% of it, while a car at 50g/km or less escapes that restriction.

The VAT is the clear win. You can normally reclaim the VAT on half the rental, and all of it on a maintenance element billed separately, against none at all on a purchase. Against that, the company builds up no value in the car, though it carries no resale risk either, and a lease comes with a mileage limit and charges if you go past it. Terms usually run two to four years.

As a rule of thumb, for a new electric car you intend to keep, buying is the stronger tax position: the 100% allowance is worth more than half the VAT on the rentals. For a petrol car you will swap every few years, it tips the other way, and leasing a car instead of buying it covers the agreement types and what they cost.

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How to pay for the car

Four routes, and all of them leave the company owning the car, so the capital allowances work the same way whichever you pick. What changes is how much leaves the account on day one.

• Cash. The full price, at once: £40,000 on a £40,000 car, about £6,667 of which is VAT that is not coming back.
• Hire purchase. A deposit, fixed monthly payments, then a small option-to-purchase fee that passes ownership to your company. Because the car is the lender's security, it usually costs less than unsecured borrowing.
• Hire purchase with a balloon payment, also sold as lease purchase. The monthly payments drop and a lump sum falls due at the end, with interest running on it throughout, so the total cost is higher.
• A business car loan. The company borrows, buys the car outright, and owns it from day one. That suits a used car, a private sale, or a car a finance company will not fund.

On the same £40,000 car, a 10% hire purchase deposit means £4,000 on day one rather than £40,000, with £36,000 financed: about £896 a month over 48 months at an assumed 9% a year, and about £7,000 of interest across the four years.

Whichever route you choose, the money goes out long before the car earns anything back. The deposit, the irrecoverable VAT, the first insurance premium, and the first vehicle tax payment all land in the same month, while the corporation tax relief waits for the company's return. That is a timing problem rather than a profit one, and it bites hardest on a company that can afford the car across four years but not in one month, so it is worth planning when the money leaves your account before you commit rather than after.

If that gap is the obstacle, this is where we come in. You can use an iwoca Flexi-Loan to buy or replace a work vehicle, and because it is unsecured we do not take a charge over it. It is a business loan with flexible repayment options: there is no fee for repaying early and interest stops when the balance does, so borrowing to cover a deposit and the VAT you cannot reclaim can cost very little if your next large invoice clears it. A decision is typically made within 24 hours, though it might be longer depending on the complexity of the request, and a quick decision is not a light one: we look at your revenue and what your business can afford to repay before making an offer. Where the car itself is the whole cost and timing is not the issue, hire purchase is secured on the car and will usually cost your company less.

Our rates start from 1.5% per 30 days, and our business loan calculator shows what you would repay. We lend to UK limited companies, and every new Flexi-Loan needs a personal guarantee from at least one director, which means that director is personally liable if the company cannot repay.

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What to do, in order

Five steps, and the first one changes the other four.

1. Check the CO₂ figure on the car you actually want. It sets the capital allowance rate and the percentage you are taxed on, so two cars that look similar on the forecourt can be thousands apart over four years.
2. Buy and register the car in the company's name. The V5C and the invoice both need the company's name on them.
3. Work out the day-one cash: the deposit or the full price, the VAT you cannot reclaim, insurance, and the first vehicle tax payment. Arrange any funding before you commit to the car.
4. Tell HMRC the car is available for private use. P11D and P11D(b) are due by 6 July after the tax year ends, with the Class 1A National Insurance by 22 July, or 19 July by cheque. From 6 April 2027, reporting moves into payroll for company cars and car fuel.
5. Log business mileage from the first journey, whether the car belongs to the company or to you. Those records are what support the claim.

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When buying a company car isn't worth it

Three situations make the whole thing uneconomic, and they are worth testing before you go further:

• The car is mostly for personal use. The benefit charge comes round every year while the relief is largely one-off, so private use eats the saving.
• The car is high-emission. Relief at 6% a year together with a percentage near the top of the band table is the worst combination here.
• Your business travel is light. Claiming 55p a mile on your own car costs the company nothing upfront and triggers no benefit charge.

All of this turns on your company's profits, the CO₂ figure of the exact car, and how far you drive, so work your own numbers through with your accountant before you commit. Every figure here was checked against gov.uk on 14 October 2026, and the Autumn Budget on 28 October 2026 could move any of them, so check the date on anything you rely on, including this.

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Company car FAQs

Can my company buy a second-hand car?

Yes, and it can claim capital allowances on it. The catch is the electric relief: a second-hand electric car does not qualify for the 100% first-year allowance, so it goes into the main rate pool at 14% a year instead.

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Is a double cab pickup a car or a van?

A car, for the benefit charge, if you got it on or after 6 April 2025. One bought, leased, or ordered before that date keeps the old van treatment until the earlier of disposal, lease expiry, or 5 April 2029.

That is HMRC's employment income manual on the benefit charge. For capital allowances the equivalent window was narrower and closed on 1 October 2025, so check the two dates separately.

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Can I buy the car back from my company later?

Yes, at market value. Pay the company less than the car is worth and the difference becomes a taxable benefit. The sale proceeds also go back into the capital allowance pool, which can claw back relief already claimed, so check the position before you agree a price.

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Will a company car cost more to insure?

It can, because business cover is priced on different use and different named drivers. No authoritative source publishes a figure, so the only reliable answer is a quote on the car you are considering.

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What do lenders look at before funding a company car?

Your company's trading history, its credit profile, and what the car is worth. A hire purchase lender will also want to approve the car and the seller. Before you apply, iwoca Credit Compass shows your Equifax business credit score for free, with four more scores and what is affecting them.