Corporate Tax
Company car tax, leasing and mileage.
Company car tax is charged on the car's list price multiplied by a percentage set by its CO2 emissions, and for an electric company car that percentage is 4% in 2026/27. We help directors, employees and business owners choose between a company car, a lease, salary sacrifice and a personal car with mileage, and get the reporting right.
Where the car tax falls.
A car provided through a business is taxed in several places at once, and the answer changes with the fuel, the emissions and who owns it.
Electric cars still carry the lowest benefit in kind charge, at 4% of list price for 2026/27, rising each year to 9% by 2029/30. The approved mileage rate for the first 10,000 business miles rose from 45p to 55p from 6 April 2026, which changes the sums for anyone driving their own car for work.
We look at the car, your business mileage and how you are paid, then set out the tax on each route before you sign a lease or place an order.
What our company car advice covers.
This sits alongside your company accounts, payroll, corporation tax return and personal Self Assessment return.
Company car or own car
We compare the benefit in kind, Class 1A and corporation tax on a company car with mileage payments on a car you own. Electric cars often suit a company, and high business mileage can favour your own.
Profit extraction02Electric car salary sacrifice
We check how a scheme is taxed for the car chosen. Cars at 75g/km or less are taxed on their normal benefit in kind, and the employer saves National Insurance on the salary given up.
Tax rates for 2026/2703Lease or buy
We set out capital allowances, the lease rental restriction and the VAT position on each option. A new zero emission car can get a 100% first-year allowance, while cars over 50g/km lose 15% of lease rentals.
Capital allowances before year end04Vans and pick-ups
We confirm whether a vehicle is a car or a van for tax. Most double cab pick-ups are now treated as cars, with transitional rules for those bought, leased or ordered before the change.
Corporate tax05Mileage claims
We review mileage policies, claims and records at the 2026/27 rates of 55p and 25p a mile. Where an employer pays less, the employee can claim mileage allowance relief on the shortfall.
Work expenses check06VAT on motoring
We advise on reclaiming VAT on lease rentals, fuel and charging. For fuel, a business can reclaim all the VAT and pay the fuel scale charge, reclaim on business mileage only, or claim none.
Business owners07P11D and payrolling
We prepare P11D and P11D(b) returns for cars, vans and fuel. From April 2027 most employers must report these through payroll instead, and we help you prepare for the change.
Personal tax08Returns that agree
We carry the decisions into the company tax return or your Self Assessment return. The claims then match the mileage records, the car policy and the payroll or P11D reporting.
The 31 January deadline09Fuel and charging
Free private fuel in a company car is taxed on £29,200 times the car's percentage. Electricity is not fuel, so paying to charge an electric company car does not create this charge.
Tax rates for 2026/27Car and mileage figures for 2026/27.
Source: GOV.UK and HMRC manuals, checked 11 October 2026, and the AP Tax Advisors 2026/27 tax rates card.
How is company car tax worked out in 2026/27?
The benefit in kind is the car's list price multiplied by its appropriate percentage. The list price includes standard accessories, VAT and delivery, but not the first registration fee. A capital contribution by the employee reduces it by up to £5,000, and payments for private use reduce the benefit.
For 2026/27 the percentage is 4% for a zero emission car. Plug-in hybrids at 1 to 50g/km range from 4% to 16% depending on electric range, and above 50g/km the percentage climbs with CO2 to 37%. Diesels that do not meet Euro 6d, also called RDE2, add 4 points within the 37% cap. The employee pays income tax on the benefit and the employer pays Class 1A National Insurance at 15%. Private fuel paid by the company adds a fuel benefit of £29,200 multiplied by the car's percentage. Electricity is not fuel for this purpose.
Later rates are already law: 5% for zero emission cars in 2027/28, 7% in 2028/29 and 9% in 2029/30, with the whole 1 to 50g/km band at 18% and then 19%. Finance Act 2026 also treats certain plug-in hybrids first registered from 1 January 2025 and before 6 April 2028, with a CO2 figure of 51g/km or more under the newer emission standards, as 1g/km until 5 April 2028, or until 5 April 2031 where the car is provided under arrangements made before 6 April 2028 and not later varied or renewed.
How does electric car salary sacrifice work?
With electric car salary sacrifice, the employee gives up salary and the employer provides a car. These optional remuneration arrangements are normally taxed on the higher of the salary given up and the benefit in kind. Cars with CO2 emissions of 75g/km or less are excluded from that rule, so an electric car or low emission hybrid is taxed on its normal benefit in kind. Above 75g/km the higher figure applies, which usually removes the advantage. The employer saves National Insurance on the salary given up and pays Class 1A on the benefit.
Charging a company electric car creates no taxable benefit, whether at work, through reimbursed home electricity or through a home charge point the employer pays for. Charging at or near the workplace for employees' own vehicles is exempt where it is available to staff there generally. A home charge point paid for by the employer for an employee's own car is taxable.
Should you lease or buy a car through a limited company?
A company buying a new, unused zero emission car can claim a 100% first-year allowance on expenditure up to 31 March 2027 (5 April 2027 for income tax), after Finance Act 2026 extended the deadline. Cars up to 50g/km and second-hand electric cars go into the main pool, where the writing down allowance fell from 18% to 14% from April 2026. Cars over 50g/km go into the special rate pool at 6%. Cars do not get the annual investment allowance or full expensing. On a sale, the proceeds come off the pool and can create a balancing charge. VAT on buying a car is blocked unless it is used only for business with no private use, and a later sale of a car whose VAT was blocked is exempt.
A company leasing a car deducts the rentals, with 15% disallowed for a car over 50g/km. Electric cars are not restricted. Where the car is available for private use, half the VAT on the rentals can usually be reclaimed. For fuel, a business can reclaim all the VAT and pay the fuel scale charge, reclaim VAT only on recorded business mileage, or claim none. Whether the car is bought or leased, private use by a director or employee brings the company car benefit.
How is van benefit taxed, and are pick-ups vans?
A company van with more than insignificant private use carries a flat benefit of £4,170 for 2026/27, plus £798 if the employer pays for private fuel. Zero emission vans have a nil benefit. There is no charge if the van is available mainly for business and private use is limited to ordinary commuting, with any other use insignificant.
From 6 April 2025 HMRC treats most double cab pick-ups as cars for benefit in kind, even with a payload of a tonne or more. Employers who bought, leased or ordered one before then keep van treatment until disposal, lease expiry or 5 April 2029, whichever comes first. For capital allowances and lease rentals the change applies from 1 April 2025 (6 April for income tax). The old treatment continued only under contracts made before then, for expenditure incurred before 1 October 2025.
What are the HMRC business mileage rates for 2026/27?
The approved mileage rate for cars and vans is 55p a mile for the first 10,000 business miles in 2026/27, up from 45p, and 25p after that. The Taxation (Energy and Vehicles) Act 2026 made the change from 6 April 2026. Motorcycles are 24p and bicycles 20p. Employers can pay up to these rates with no tax to pay, plus up to 5p a mile for each fellow employee carried. For National Insurance the 55p rate applies to every business mile, including those over 10,000. If the employer pays less, the employee can claim mileage allowance relief on the shortfall, going back up to 4 years. Commuting to a permanent workplace does not count. The government has said it will review the rates for later years at Budget 2026.
Company car drivers are reimbursed at HMRC's advisory fuel rates, which include electric rates and change every quarter.
Sole traders and partners can claim actual vehicle costs and capital allowances less a private-use share, or flat rates of 55p and 25p a mile for cars and goods vehicles. Once flat rates are used for a vehicle they must continue for as long as it is in the business, and they cannot be used for a vehicle already claimed through capital allowances.
Company car or personal car: which works better?
A company car works best when it is electric, because the percentage is low and the company gets relief for the cost. A petrol or diesel company car is usually expensive in tax, because the charge is a high share of list price however little you drive privately. A car you own, with mileage paid at 55p and 25p, tends to suit high business mileage, although you buy it from taxed income. We run the figures for your car and your pay alongside your profit extraction.
Electric cars have paid vehicle excise duty since 1 April 2025. From 1 April 2026 the expensive car supplement applies to zero emission cars with a list price over £50,000, against £40,000 for other cars. A pay-per-mile Electric Vehicle Excise Duty of 3p a mile for electric cars and 1.5p for plug-in hybrids has been announced for 1 April 2028, subject to legislation. From April 2027 most employers must report company cars, vans and fuel through payroll instead of on the P11D.
How our engagement works.
Understand the car and the use
We note the list price, CO2 figure and electric range of the car you are considering, and how much business and private driving you expect. We also look at who will own or lease it, how it will be charged or fuelled and your company's tax position.
Scope and fixed fee
We confirm in writing which options we will compare and the fixed fee. Work starts once you have signed the engagement letter and we have completed our identity and anti-money laundering checks. We then ask for the quote or lease terms, your mileage estimate and current payroll details.
Compare the routes
We set out the benefit in kind, Class 1A, corporation tax relief and VAT on a company car, a lease, salary sacrifice and your own car with mileage payments, at 2026/27 rates. You receive a written comparison with our recommendation and the figures behind it.
Set up and review
We help with the car policy, mileage records, VAT claims and P11D or payroll reporting, then carry the figures into the company and personal returns. We review the position each year, when a lease ends or the car is replaced, and after each Budget.
Company Cars & Leasing, answered.
Company car tax
The benefit in kind is 4% of the car's list price. For example, a car with a list price of £40,000 gives a taxable benefit of £1,600 for the year. If you pay income tax in England, Wales or Northern Ireland, the tax on that is £320 at the basic rate (20%), £640 at the higher rate (40%) or £720 at the additional rate (45%). If you are a Scottish taxpayer, Scottish income tax rates apply instead, so the figure will be different. Your employer also pays Class 1A National Insurance of 15% on the benefit, which is £240. The percentage rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30.
No. HMRC's manual says electricity is not fuel for this purpose, so no car fuel benefit charge arises on a fully electric car. Charging at work creates no taxable benefit, and an employer can repay the cost of charging a company car at home or at a public point, or pay for a charge card, without a separate tax charge. The car itself is still taxed at 4% of list price for 2026/27.
If the company pays for any private fuel in a petrol, diesel or hybrid company car, the employee is taxed on £29,200 multiplied by the car's appropriate percentage for 2026/27. At 37%, that is a taxable benefit of £10,804, and the company also pays 15% Class 1A on it. The charge falls to nil only if the employee repays the whole cost of private fuel, or fuel is provided for business travel only.
Hybrids with CO2 emissions of 1 to 50g/km are taxed by electric range. For 2026/27 the percentage of list price is 4% with a range of 130 miles or more, 7% for 70 to 129 miles, 10% for 40 to 69 miles, 14% for 30 to 39 miles and 16% under 30 miles. Hybrids above 50g/km use the CO2 bands, starting at 17%. Free private fuel adds a separate fuel benefit charge.
It can. For cars with CO2 emissions of 75g/km or less, the taxable value is the normal benefit in kind, not the salary given up, so a fully electric car is taxed at 4% of list price in 2026/27. The employee pays no income tax or National Insurance on the salary sacrificed. For cars above 75g/km, the taxable value is the higher of the salary given up and the benefit in kind.
Leasing, buying and VAT
Often it is. The company deducts the rentals with no 15% restriction, which applies only to cars over 50g/km, and the benefit in kind is low. With private use, the company can usually reclaim only half the VAT on the rentals. Buying a new electric car instead gives a 100% first-year allowance on expenditure up to 31 March 2027. We compare both.
A new, unused zero emission car qualifies for a 100% first-year allowance if bought by 31 March 2027 for companies, or 5 April 2027 for income tax. Other cars bought from April 2021 go into the main pool at 14% a year if CO2 emissions are 50g/km or less, or the special rate pool at 6% if above. Second-hand electric cars get the main rate.
Usually not on a purchase. VAT on buying a car is blocked unless it is used only for business and not available for private use. On a leased car with private use, the business can usually reclaim 50% of the VAT on the rentals. VAT on repairs and maintenance is generally reclaimable, and fuel VAT can be reclaimed using the fuel scale charge or business mileage records.
From April 2025 HMRC expects most double cab pick-ups to be treated as cars for benefit in kind, capital allowances and lease rentals, even with a payload of a tonne or more. For benefit in kind, employers who bought, leased or ordered one before 6 April 2025 can keep van treatment until it is disposed of, the lease ends or 5 April 2029, whichever comes first. For capital allowances and lease rentals, the old treatment only covered contracts made before 1 April 2025 (6 April for income tax) and expenditure incurred before 1 October 2025.
Mileage, vans and reporting
Yes, if you use your own car for business journeys. For 2026/27 your company can pay up to 55p a mile for the first 10,000 business miles and 25p after that, with no tax or National Insurance to pay, and deduct the cost. Journeys between home and your permanent workplace are commuting and do not count. Company car drivers use the advisory fuel rates instead.
If private use is more than insignificant, the employee is taxed on a flat van benefit of £4,170 for 2026/27, plus £798 if the employer pays for private fuel, and the employer pays 15% Class 1A on both. A zero emission van has a nil van benefit charge. Vans used only for business journeys, or with only insignificant private use such as a small detour, are exempt.
For 2026/27, yes, unless you already payroll the benefit. The P11D and P11D(b) are due by 6 July 2027, and the Class 1A National Insurance must be paid by 22 July (19 July by cheque). From 6 April 2027 most employers must report company cars, vans and fuel through payroll in real time instead, with Class 1A also worked out as they go. Final rules are due in secondary legislation.
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