Key takeaways

  • Buying a car through your limited company is usually worth it for a fully electric car, because the benefit in kind rate is just 4% in 2026/27 and 5% in 2027/28.
  • Petrol and diesel company cars can attract a benefit in kind rate of up to 37% of list price, which often makes them more expensive than owning the car personally.
  • A new zero-emission car bought by a company qualifies for a 100% first-year allowance until 31 March 2027 for Corporation Tax.
  • The company pays Class 1A National Insurance at 15% on the taxable value of a company car in 2026/27.
  • VAT on buying a car can only be reclaimed if the car is used exclusively for business and is not available for private use.
  • If you use your own car instead, the company can pay you 55p a mile tax-free for the first 10,000 business miles in 2026/27.
  • From 6 April 2027, company car benefits must be reported through payroll instead of on a P11D.

Buying a car through your limited company is usually worth it if the car is fully electric, and usually not worth it if it is petrol or diesel. The difference comes from the benefit in kind charge: 4% of the list price for an electric car in 2026/27, against up to 37% for a high-emission car. The company also gets better tax relief on a new electric car.

How is a company car taxed?

A company car you can use privately is a taxable benefit for you and a National Insurance cost for the company. Your benefit is the car’s list price multiplied by the “appropriate percentage” for its CO2 emissions, and you pay Income Tax on that amount at your marginal rate. The company pays Class 1A National Insurance at 15% on the same figure, according to HMRC’s rates and thresholds for employers 2026 to 2027.

The company can also claim capital allowances on the cost, which reduce its Corporation Tax.

Benefit in kind rates for 2026/27 onwards

HMRC’s appropriate percentage table and Budget 2026 Annex A set these rates.

Car type2026/272027/28
Electric (0g/km)4%5%
Plug-in hybrid, 1 to 50g/km, 130+ electric miles4%5%
Plug-in hybrid, 1 to 50g/km, under 30 electric miles16%17%
55 to 59g/km18%19%
Highest emissions37%37%

Rates rise after that. Electric cars go to 7% in 2028/29, 9% in 2029/30 and 10% in 2030/31, and all hybrids with 1 to 50g/km move to 18% from 2028/29. Diesel cars that do not meet the RDE2 standard add 4 percentage points, up to the maximum.

What tax relief does the company get?

The company’s relief depends on the car’s emissions, according to GOV.UK’s business cars page.

  • New, unused zero-emission car: 100% first-year allowance, so the full cost is deducted in the year of purchase.
  • Second-hand electric car, or any car at 50g/km or less: main rate allowance of 14% a year (18% before April 2026). The main rate falls to 12% from 1 April 2027 for companies.
  • Car over 50g/km: special rate allowance of 6% a year.

HMRC’s policy paper of 26 November 2025 extended the 100% allowance for zero-emission cars to 31 March 2027 for Corporation Tax. We did not find a further extension in the Budget 2026 documents, so check before buying after that date.

Worked example: electric v petrol

Take two cars with a £40,000 list price, provided to a higher rate director in 2026/27.

Electric (4%)High-emission petrol (37%)
Taxable benefit£1,600£14,800
Director’s tax at 40%£640£5,920
Company Class 1A at 15%£240£2,220

If the company buys the electric car new before 31 March 2027, it can deduct the full £40,000 against profits. At the 25% main rate of Corporation Tax, that is a £10,000 saving in year one. The petrol car would get only 6% a year on a reducing balance.

The figures exclude fuel. If the company also pays for private fuel, a separate fuel benefit applies; the multiplier is £30,200 for 2027/28.

Can the company reclaim VAT?

Usually not. HMRC’s Notice 700/64 blocks VAT on buying a car unless it is used exclusively for business and is not available for private use, which a director’s car almost never is. On a lease, the company can normally reclaim 50% of the VAT.

Is using your own car better?

For petrol and diesel cars, it often is. If you own the car and use it for business, the company can pay you HMRC’s approved mileage rate tax-free. GOV.UK’s mileage rates for 2026/27 are 55p a mile for the first 10,000 business miles and 25p after that. From 6 April 2027 the higher band rises to 35p; see mileage rates after Budget 2026. Try the mileage calculator.

Which applies to you?

  • If you want an electric car, buying or leasing it through the company is usually the most tax-efficient route.
  • If you want a petrol or diesel car, compare the benefit in kind cost with owning it personally and claiming mileage.
  • If the car will be a pool car kept at the business premises with no private use, there is no benefit in kind and VAT may be recoverable.

What to do now

  1. Get the list price and CO2 figure for the car you want.
  2. Work out the benefit in kind using the table above, or our company car tax guide.
  3. Check the purchase date against the 31 March 2027 first-year allowance deadline.
  4. Plan for payrolling. From 6 April 2027 company cars must be reported through payroll; see payrolling benefits in kind.

Frequently asked questions

Is it worth buying an electric car through a limited company?

Usually yes. The benefit in kind is 4% of list price in 2026/27, and a new car can qualify for a 100% first-year allowance until 31 March 2027.

Can my company buy a car I use personally without tax?

No. If the car is available for private use, you pay tax on a benefit in kind and the company pays 15% Class 1A National Insurance.

Can I reclaim VAT on a company car?

Only if it is used exclusively for business and not available for private use. Most directors’ cars do not qualify.

What capital allowances can a company claim on a petrol car?

Cars over 50g/km get the special rate allowance of 6% a year. Cars at 50g/km or less get the main rate of 14% in 2026/27.

Do I report a company car on a P11D?

For 2026/27, yes, unless you already payroll benefits. From 6 April 2027 company cars must be payrolled through Real Time Information.

Sources

Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.