Buying a car through your limited company can be a smart move – but only if you choose wisely. The wrong choice could mean high tax bills, while the right one can save you thousands in tax and running costs.
So, should you buy, lease, or use a personal car or vehicle for business?
Here’s what you need to know…
Should you buy a car through your Limited Company?
Buying a vehicle through your company means the business pays for it, but it also comes with tax implications:
Pros
- The business covers purchase, fuel, insurance, maintenance, and running costs.
- You may claim capital allowances to reduce taxable profits.
- Electric and low-emission cars have huge tax benefits.
Cons
- You’ll likely pay Benefit in Kind (BIK) tax if you use the car personally.
- Some vehicles attract high BIK rates, making them expensive to run via your company.
- The company will pay Class 1A National Insurance on the car’s taxable benefit.
Tip: If you only use the car for business (and never for personal use), it avoids BIK tax – but HMRC may check this carefully.
What cars are tax-efficient for Limited Company owners?
Electric & Low-Emission Cars
If you want the most tax-efficient company car, electric and low-emission vehicles are the way to go.
- Low BIK Tax – Electric vehicles (EVs) have a 2% BIK rate (3% for 2025/26 tax year), saving you thousands
- First-Year Allowances – 100% of the car’s cost can be deducted from profits if it’s fully electric
- Lower Running Costs – Electricity is cheaper than fuel, and maintenance costs are lower.
Examples of Tax-Efficient Cars:
- Tesla Model 3 – 2% BIK(3% for 2025/26), full capital allowance claim.
- Hyundai Ioniq 5 – Low BIK and running costs.
- BMW i4 – A great tax-efficient business vehicle.
Tip: Hybrid cars can also be tax-efficient if they have low CO2 emissions (under 50g/km).
Vans, Pickups, and other Commercial Vehicles
Vans can be highly tax-efficient for limited company owners because they are classed as commercial vehicles, meaning:
- No Benefit in Kind tax if used solely for business purposes.
- 100% of the cost can be deducted from profits using the Annual Investment Allowance (AIA).
- Lower running costs due to tax treatment compared to standard company cars.
Tip: Double-cab pickups class as commercial vehicles if purchased/leased before 6th April 2025, avoiding the high BIK tax that applies to standard cars.
This is a complex area and there are numerous things to consider so it’s always best to speak with your accountant before purchasing any commercial vehicle.
What cars should you avoid?
Some cars attract high tax costs when bought through a company.
- High CO2 Emission Cars – Large petrol or diesel vehicles attract high BIK tax (up to 37%) and minimal tax relief
- Luxury Cars – High purchase costs mean higher BIK tax and National Insurance contributions
- Older Cars – Limited tax relief, higher maintenance costs, and not as fuel-efficient.
Example: A Range Rover with a high CO2 rating could mean BIK tax of 37%, making it a costly choice for a company car.
Should you lease or buy a car through your business?
Leasing Pros
- Monthly payments are fully tax-deductible.
- No need to worry about depreciation.
- Some contracts include maintenance (potentially saving you money).
Leasing Cons
- You don’t own the car at the end of the lease.
- No capital allowances – just a tax-deductible expense.
Tip: Leasing is a great option if you want a tax-efficient way to drive a new car without upfront costs.
What if you use your personal car for business?
If you already own a car, you don’t need to buy through your company to claim tax relief.
- Claim mileage allowance (45p per mile for the first 10,000 miles, 25p thereafter)
- No BIK tax to worry about
- Keep your personal insurance and costs separate.
Tip: If you drive fewer miles, mileage claims may be more tax-efficient than owning a company car.
What’s the best option?
- Best for tax savings? Electric cars through your company
- Best for flexibility? Leasing a low-emission car
- Best for tax efficiency? Vans
- Best for simplicity? Using your personal car and claiming mileage
Not sure what’s best for your business? Speak to BAS Associates for expert advice on tax-efficient vehicle choices for your limited company!
To read more from HMRC on tax on company cars you can visit their website here.
