How is the P11D value of a company car calculated?

The P11D value is the car's list price, including any accessories, VAT, and delivery charges, but it excludes the first registration fee and annual road tax. This is the figure used to calculate the Benefit in Kind.

What are the tax implications if my company pays for my private fuel?

If your company pays for fuel used for your private journeys in a company car, and you don't fully reimburse them, you will incur a separate fuel benefit charge. This is a taxable benefit added to your income, and your company will also pay Class 1A National Insurance on it.

Can my company reclaim VAT on the purchase of a company car?

Generally, no. Your company cannot reclaim VAT on the purchase of a car if it is available for any private use. Exceptions exist for vehicles used exclusively for business, such as taxis, driving school cars, or genuine pool cars with no private use.

How do electric vehicles (EVs) compare to petrol/diesel cars for company car tax?

Electric vehicles are significantly more tax-efficient due to very low Benefit in Kind (BiK) rates. For 2026/27, a fully electric car has a BiK rate of just 4%, compared to much higher rates (up to 37%) for most petrol and diesel cars. This makes EVs a very attractive option for company car schemes.

What are Advisory Fuel Rates (AFRs) and when should I use them?

Advisory Fuel Rates (AFRs) are HMRC-published rates used to reimburse employees for business travel in their company cars or for employees to repay the cost of fuel used for private travel. Using these rates ensures that no additional tax charge arises. There are also Advisory Electricity Rates (AERs) for electric company cars.

What is the deadline for reporting company car benefits?

Companies must report company car benefits on a P11D form by 6 July following the end of the tax year (e.g., 6 July 2027 for the 2026/27 tax year). From April 2027, payrolling benefits will become mandatory, meaning these benefits will be reported through your regular payroll submissions.

Buying a company car: the tax decision (including EVs)

Company Car vs. Personal Car: The Core Decision

Deciding whether to buy a car through your limited company or personally can significantly impact your tax position. While a company car can offer Corporation Tax relief for the business, it introduces a personal tax charge for the user. This is where understanding Benefit in Kind (BiK) becomes crucial.

For many small business owners, especially directors of limited companies, the choice often boils down to balancing the company's tax savings against their personal tax liability. The type of car, particularly its CO2 emissions, plays a major role in this calculation.

Understanding Benefit in Kind (BiK) for Company Cars

When your company provides you with a car that is available for private use, HMRC considers this a taxable benefit – a Benefit in Kind (BiK). This benefit is added to your personal income for tax purposes, and the company also pays National Insurance on it.

The BiK value is calculated based on the car's P11D value (its list price, including VAT and accessories, but excluding the first registration fee and annual road tax). This value is then multiplied by an 'appropriate percentage' determined by the car's CO2 emissions and, for some low-emission vehicles, its electric range.

BiK Rates for 2026/27 (figures for illustration – check current rates)

Fully Electric Vehicles (Zero Emission): For the 2026/27 tax year, the BiK rate for fully electric vehicles is 4% of the P11D value. This rate is set to increase gradually in future tax years.
Ultra-Low Emission Vehicles (1-50 g/km CO2): The BiK rate depends on the car's electric-only driving range:
130 miles or more: 4%
70-129 miles: 7%
40-69 miles: 10%
30-39 miles: 14%
Less than 30 miles: 16%
Higher Emission Vehicles (51+ g/km CO2): The BiK rates increase with CO2 emissions, reaching a maximum of 37% for the highest emitters in 2026/27. A 4% diesel supplement may apply to diesel cars that do not meet Real Driving Emissions Step 2 (RDE2) standards, capped at the maximum rate.

The employee pays Income Tax on the BiK value at their marginal rate (e.g., 20%, 40%, or 45%). The company pays Class 1A National Insurance Contributions (NICs) on the same BiK value.

Fuel Benefit Charge

If your company also provides fuel for private journeys in a company car, and you don't fully reimburse the company for this private fuel, an additional fuel benefit charge applies.

For 2026/27, the car fuel benefit multiplier is £29,200. This multiplier is applied to the same CO2 emissions percentage used for the car BiK to calculate the taxable fuel benefit. This can quickly become expensive, as the charge applies regardless of how much private fuel is actually used.

Capital Allowances: Reducing Your Company's Tax Bill

When your company buys a car, it can claim capital allowances to reduce its taxable profits. The amount of relief depends on the car's CO2 emissions and whether it's new or used.

New Zero-Emission Cars (including EVs): These qualify for a 100% First Year Allowance (FYA) until April 2027, meaning the company can deduct the full cost from its taxable profits in the year of purchase. This is a significant incentive.
Cars with CO2 Emissions of 50g/km or less (including second-hand EVs): These fall into the main rate pool. From April 2026, the writing down allowance (WDA) for this pool is 14% per year on a reducing balance basis.
Cars with CO2 Emissions over 50g/km: These fall into the special rate pool, with a WDA of 6% per year on a reducing balance basis.

It's important to note that cars are generally excluded from the Annual Investment Allowance (AIA) and Full Expensing schemes. If you are a sole trader or in a partnership, you must adjust any capital allowance claims to reflect the proportion of business use.

VAT and Other Considerations

VAT on Purchase: Generally, your company cannot reclaim VAT on the purchase of a car if it's available for private use. Exceptions apply for vehicles used exclusively for business, such as taxis, driving instruction cars, or genuine pool cars with no private use.
VAT on Leasing: If you lease a company car that has private use, you can usually reclaim 50% of the VAT on the lease payments.
VAT on Fuel and Maintenance: VAT on fuel used for business journeys can be reclaimed. If there's private use, you'll need to either apply a fuel scale charge or keep detailed mileage records to account for the private element. VAT on repairs and maintenance is generally recoverable if the business pays for it.
Advisory Fuel Rates (AFRs): If your company car is used for business travel, your company can reimburse you for the fuel used at HMRC's Advisory Fuel Rates (AFRs) without creating an additional tax charge. These rates are updated quarterly. For fully electric cars, there are Advisory Electricity Rates (AERs) – for example, 7p per mile for home charging and 15p per mile for public charging from 1 June 2026 (figures for illustration – check current rates).

Common mistakes

Underestimating BiK: Not fully understanding the BiK implications, especially for higher CO2 emission vehicles, can lead to unexpected personal tax bills.
Ignoring Fuel Benefit: Assuming that providing fuel for a company car is always tax-efficient, without calculating the significant fuel benefit charge.
Incorrect VAT Recovery: Attempting to reclaim 100% VAT on a car purchase when it has any private use, which is generally not allowed by HMRC.
Missing P11D Deadlines: Failing to report company car benefits on a P11D (or via payroll from April 2027) by the 6 July deadline after the end of the tax year.
Not Tracking Mileage: For sole traders or partnerships, failing to keep accurate mileage records to justify the business proportion of capital allowances and running costs.

Frequently asked questions

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