April 7, 2026
If you’re a director asking whether to buy a car through your limited company or personally, you’re really asking one thing:
Which option is more tax efficient?
There are pros and cons, and we hope this blog will help you come to a decision!
There are strong tax advantages, however the majority are towards fully electric vehicles.
New and unused electric cars (CO2 emissions of 0g/km)qualify for 100% first-year capital allowances. That means your company can deduct the full cost from taxable profits immediately. This means you reduce your corporation tax bill in year one. Awesome!
For profitable companies looking to reduce their tax bill efficiently, this is a powerful tool.
It is important to remember that petrol and diesel cars don’t get this treatment. Their capital allowances are much slower, especially for high-emission vehicles.
If you use a company car personally (which most directors probably do), it becomes a Benefit-in-Kind (BIK) and you pay have to pay income tax on it- ouch.
However, here’s where electric cars shine. The Benefit-in-Kind rates when buying an electric car through a limited company areas follows:
Compare that to combustion engine cars, which can reach 37%of the car’s list price if emissions are high i.e. Diesel cars. That difference is huge, and one to think bout if you are considering buying a car through a limited company.
If your company is VAT-registered, there is an opportunity for savings here. However, treatment depends heavily on how the car is acquired:
Contract hire (leasing):
Hire purchase:
This can reduce the real-world cost, but it’s not always as generous as people assume.
When the car is owned by the limited company, the associated bills that come with owning a car in general, can then be paid by the company instead of out of your own pocket. This means that things such as Insurance, repairs,road tax and business use fuel can all be paid directly by the company anddeducted against corporation tax.
It also keeps personal and business finances clearly separated, which we know can be a bit confusing at times!
For all the positives of buying a car through your limited company there are also some downsides to consider.
For non-electric cars, BIK rates are linked to emissions. The higher the CO₂, the higher the tax. Directors often underestimate how quickly this adds up.
On top of your personal tax bill:
What looks tax-efficient at first glance can become very costly over three or four years. Add on top of that, there is increased administration that comes with having to file all those forms. Think about that time which could be spent working on your business!
Company car insurance is typically 20–30% more expensive than personal policies. It may seem like a small detail now, but it adds up in the long run.
Cars are depreciating assets. This means as soon as you drive it away from the dealer, it loses value. That is whether you buy the car through a limited company or not. When your limited company buys one:
For growing companies, this opportunity cost matters.
For many directors, this is the more tax-efficient route.
If you buy the car personally, you can claim 45p per mile for the first 10,000 business miles in the tax year. You can then claim 25p per mile thereafter, until the start of the next tax year. The company gets corporation tax relief on the mileage payments
A positive of buying the car personally vs through your limited company is that there’s no Benefit-in-Kind tax, no Class 1ANIC’s and no P11D to file every year. This means there’s less annoying admin to do!
Buying personally is particularly attractive if, your business mileage is modest, the car is mainly for personal use and it’s petrol or diesel- not electric.
In many real-world scenarios, the mileage allowance works out more efficient than company ownership, especially once BIK tax is factored in.
Overall, there are many pros and cons to buying a car through your limited company. The circumstances changes person to person and business to business. Hopefully, this guide has given you a more in depth idea of whether it is a positive thing for you to do! As always, we understand that lots of this jargon and money talk can be confusing. If you'd like a clearer, more suited to you explanation about whether to buy a car through your limited company or not, you can contact us here.
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