Providing yourself with a company car through your limited company is one of the highest-profile perks a director can take — but the tax cost depends entirely on what you drive. For the 2026/27 tax year the gap between an electric vehicle and a petrol car is wider than ever, and the capital-allowance landscape has shifted too.
This guide walks you through how a company car works for a director-shareholder, what it costs in BIK and corporation tax, and when you would be better off using the 45p mileage route instead.
How a Company Car Through a Limited Company Works
When your Ltd buys or leases a vehicle and lets you use it privately, HMRC treats that private use as a benefit in kind (BIK). The taxable value is calculated as:
BIK = P11D value x BIK percentage
The P11D value is the list price of the car including extras and delivery, but excluding the registration fee and first-year VED. The BIK percentage is set by HMRC each year based on the car’s CO2 emissions and fuel type.
As the director you pay income tax on that BIK amount at your marginal rate — 20 %, 40 % or 45 %. Your company also pays Class 1A National Insurance at 15 % on the same figure.
2026/27 BIK rates at a glance
| Vehicle type | CO2 band | BIK % |
|---|---|---|
| Fully electric (0 g/km) | 0 | 4 % |
| Plug-in hybrid, 70+ mile range (1–50 g/km) | 1–50 | 5–8 % |
| Petrol, 100 g/km | 100 | 25 % |
| Petrol, 120 g/km | 120 | 28 % |
| Diesel (non-RDE2), 120 g/km | 120 | 32 % |
The maximum BIK percentage for any car is 37 %. Diesel models that do not meet the RDE2 emissions standard attract a 4 % surcharge, capped at the same 37 % ceiling.
BIK Tax: Electric vs Petrol Company Car
The numbers below use a P11D value of £42,000 so you can compare like for like.
Electric car — 4 % BIK (2026/27)
- BIK value: £42,000 x 4 % = £1,680
- Director’s income tax (40 % rate): £672 per year
- Company Class 1A NIC (15 %): £252 per year
- Combined annual cost: £924
Petrol car — 28 % BIK (120 g/km)
- BIK value: £42,000 x 28 % = £11,760
- Director’s income tax (40 % rate): £4,704 per year
- Company Class 1A NIC (15 %): £1,764 per year
- Combined annual cost: £6,468
That is a difference of over £5,500 a year in tax — before you even consider capital allowances. For a deeper look at every BIK band, see our company car tax 2026 BIK rates guide.
Corporation Tax Relief: Capital Allowances on Company Cars
Your Ltd can also deduct the cost of the car against its profits, but the rate of relief varies dramatically by emission level.
100 % First Year Allowance — zero-emission vehicles
New, unused zero-emission cars qualify for 100 % FYA, meaning your company deducts the full purchase price in the year it buys the vehicle. This relief has been extended to 31 March 2027 for corporation-tax purposes.
Buy a £42,000 electric car outright and your company claims the full £42,000 against profits in year one, saving £10,500 in corporation tax at 25 %.
Writing Down Allowance — low and high emission cars
From April 2026 the main-rate WDA drops from 18 % to 14 % per annum. Cars with CO2 emissions of 50 g/km or below enter the main pool and attract this new 14 % rate on a reducing-balance basis.
Cars above 50 g/km sit in the special-rate pool at just 6 % per annum. A £42,000 petrol car at 120 g/km would generate a first-year deduction of only £2,520 — a fraction of the EV allowance.
| Emission level | Pool | WDA rate (from April 2026) |
|---|---|---|
| 0 g/km (new & unused) | 100 % FYA | Full cost in year 1 |
| 1–50 g/km | Main pool | 14 % reducing balance |
| 51 g/km + | Special rate pool | 6 % reducing balance |
For more detail on allowance pools and how they interact with leasing, read our capital allowances on cars article.
Company Car vs 45p Mileage Claims for Directors
The alternative to a company car is to own the vehicle personally and have your Ltd reimburse you at HMRC’s approved mileage rate — 45p per mile for the first 10,000 business miles and 25p thereafter. That payment is tax-free to you and fully deductible for the company.
When mileage claims win
For petrol and diesel cars the mileage route is almost always cheaper. The 45p rate carries no BIK charge, no Class 1A NIC, and no P11D reporting burden. It is also simpler — no need to decide between purchase and lease, no WDA calculations.
Example — 12,000 business miles in a petrol car
- Mileage claim: (10,000 x 45p) + (2,000 x 25p) = £5,000 tax-free to director
- Corporation tax saving: £5,000 x 25 % = £1,250
- Total BIK: £0
Compare that with the £6,468 annual BIK cost of the same petrol car as a company vehicle, and the mileage route is the clear winner.
When a company car wins
An electric company car through a limited company beats mileage claims when:
- The 4 % BIK keeps the personal tax bill under a few hundred pounds a year.
- The 100 % FYA delivers a one-off corporation-tax saving that dwarfs the cumulative mileage deductions.
- You drive moderate private mileage, keeping the BIK cost low while still enjoying free-of-charge workplace charging (which does not trigger a further BIK).
The crossover is clear: EV — company car wins; petrol or diesel — 45p mileage wins in the vast majority of cases.
Leasing vs Buying Through Your Ltd
If the upfront cost of purchasing is too high, your company can lease an electric car instead. Lease rentals on zero-emission cars are fully deductible — unlike higher-emission vehicles, which lose 15 % of the rental deduction.
However, leasing means the company cannot claim the 100 % FYA. You get a steady monthly deduction rather than a large year-one write-off. Weigh up the cash-flow benefit of leasing against the bigger tax hit of purchasing outright. Our lease vs buy for business guide covers the full comparison.
Reporting, Payrolling and Mileage Records
Your company must report any company car BIK to HMRC. Currently this is done via a P11D form filed by 6 July each year, but from April 2027 payrolling of benefits in kind becomes mandatory — the BIK will be collected through PAYE in real time each pay period.
Watch the private-fuel trap too. If the company pays for fuel used on private journeys, an additional fuel benefit charge applies — calculated as £28,200 x the car’s BIK percentage for 2026/27. On a 4 % EV that adds only £1,128 in taxable benefit, but on a 28 % petrol car it adds £7,896 — rarely worth accepting.
Whether you take the company car route or claim 45p per mile, HMRC expects a contemporaneous mileage log showing the date, start and end locations, purpose and distance of every business journey. For company car holders, these records support Advisory Fuel Rate reimbursements. For mileage claimants, they underpin every penny you claim.
Tripbook automates this entirely — it tracks every journey using your phone’s GPS, lets you classify trips as business or personal with a single swipe, and exports HMRC-ready reports whenever you need them. Keeping a manual spreadsheet is tedious and error-prone; Tripbook removes that friction so your records are always audit-proof.
Download Tripbook from the App Store and start logging your company car or personal mileage today.
