Company Car Resources

Sorting out a company car used to be straightforward. These days, with electric vehicles offering incredible tax breaks, salary sacrifice schemes changing the game, and HMRC rules constantly evolving, you need proper guidance. We’ve built this resource to cut through the confusion and show you exactly what works, what doesn’t, and what will save you the most money.

Types of Car Buying & Financing Options

Getting a company car through your limited company? Here’s how each route stacks up for tax relief, cash flow, and your balance sheet.

Outright Purchase

You buy it, you own it, you claim capital allowances. EVs are especially attractive – 100% first year allowance if purchased before 31 March 2026. The catch? Big upfront cost, no VAT recovery (cars are blocked unless strictly business-only), and you handle depreciation and disposal.

Hire Purchase

Spreads the cost but HMRC treats it as ownership from day one – so you still get those capital allowances immediately. Only the interest portion of payments is tax deductible (capital element is covered by allowances). Often the sweet spot for cash flow vs. tax relief, particularly for EVs while the 100% FYA lasts.

Leasing

Never own it – just pay monthly rentals then hand it back. Payments are a business expense (though only 85% deductible if the car emits over 50g/km CO₂). The big win? You can reclaim 50% of VAT on payments – something you can’t do when buying. Contract hire often bundles maintenance, road tax, and breakdown cover. Watch out for mileage limits and damage charges.

Salary Sacrifice

An arrangement where employees (including directors) give up gross salary for a company car. Saves income tax and NI for the employee, 13.8% employer’s NI for you. Brilliant for EVs with their low Benefit-in-Kind rates (2% in 2024/25, rising to 3% in 2025/26). You still get 50% VAT recovery and tax-deductible rentals. Just ensure nobody drops below minimum wage.

Option	You Own It?	Tax Relief	VAT Back?	Best For
Outright Purchase	Yes	100% FYA for EVs (until Mar 2027)	No*	Cash-rich businesses wanting full ownership
Hire Purchase	Yes (after payments)	Capital allowances from day one	No*	Ownership + flexibility without the upfront hit
Leasing	No	Deduct payments (85% if >50g/km CO₂)	50%	Simple budgeting, no depreciation headaches
Salary Sacrifice	No	Deduct lease + save 13.8% employer’s NI	50%	EVs – tiny BiK, big NI savings

*VAT on cars is blocked unless genuinely 100% business use (rare)

Why EVs Win on Benefit-in-Kind

If you’re taking a company car, the tax you pay depends on its list price and CO₂ emissions. This is where electric vehicles pull miles ahead.

For 2025/26, a fully electric car has a BiK rate of just 3%. A hybrid sits around 13%, and petrol/diesel can hit 37% depending on emissions. On a £40,000 car, that’s the difference between £480 and £5,920 in annual tax for a higher-rate taxpayer.

Type	BiK %	Taxable Value	Director (40%) Tax
⚡EV	3%	£1,200	£480/yr
🔋Hybrid	13%	£5,200	£2,080/yr
⛽Diesel (120 g/km)	37%	£14,800	£5,920/yr

Example based on £40,000 list price, 2025/26 rates. Hybrid assumes typical PHEV with limited electric range.

It’s worth nothing that BiK rates are rising over the next several years. By 2029/2030, the BiK rate for EVs will be 9%, hybrids will be 19% and petrol/Diesel will be 39%.

⚡Electric Company Cars, Made Simple

At Dead Simple Accounting, we’re all about helping clients make smart decisions that save tax, support sustainability, and make financial sense.

So that’s why we’ve team up with Octopus EV because they make going electric simple, affordable, and genuinely rewarding – both financially and environmentally.

Find Out More

Company Car Tax Guides

Can I Buy a Used Electric Car Through My Business? The VAT Reality Check

Thinking about buying a used electric vehicle (EV) for your business? Smart move – electric cars are brilliant for the environment and your running … Read more

The Changing World of Company Cars 🚗📈: What You Need to Know!

Thinking of getting a company car? Or maybe you already have one and want to stay ahead of the curve? Let’s break down the recent … Read more

Company Car Tax FAQs

VAT can only be reclaimed if the car is used exclusively for business purposes. For cars for personal use, VAT recovery isn’t allowed.

BIK tax is a charge on personal use of company assets, calculated based on the car’s value, CO2 emissions, and the taxpayer’s income tax rate.

Leasing avoids depreciation concerns but limits capital allowance claims. Buying offers tax benefits but requires higher upfront costs.

Yes, electric cars benefit from lower BiK rates, full first-year capital allowances, and other eco-incentives.

Yes, you must report it on a P11D form and calculate any applicable BIK tax.

Instead of an upfront purchase, consider hire purchase, leasing, or a flexible business loan. Hire purchase spreads costs over time, giving you ownership at the end. Leasing keeps payments predictable while avoiding depreciation risks. Alternatively, a flexible loan, like an iwoca Flexi-Loan, lets you borrow what you need and repay early with no fees, ensuring your cash flow stays healthy.