Minimising Tax on Company Cars

The cost of being provided with a company car has reached extremely high levels and whether to make use of a company car for private purposes now requires careful consideration to minimise the tax costs.

There are a number of factors that can be considered including the following...

• The Basics - the company car tax charge is based on the vehicle's list price, CO2 emissions and the type of fuel. The lower the list price and CO2 emissions the lower the tax charge, although diesel vehicles carry a premium.
• Electric cars – the company car tax benefit in kind charge for fully electric cars becomes 3% as of April 2025. The rate will increase by 1% annually - 4% in 2026/27, and capping at 5% in 2027/28.
• Electric vehicles (EVs) – in the UK will lose their exemption from Vehicle Excise Duty (VED) starting April 1, 2025. For new EVs registered on or after April 1, 2025, a £10 first-year rate will apply, followed by an annual standard rate of £195 from the second year onwards. Owners of EVs registered between April 1, 2017, and March 31, 2025, will transition directly to paying the £195 standard rate each year.
• Classic Cars - those cars aged 15 years or more with a market value of £15,000 or more have the market value applied instead of the list price but for those worth less than £15,000, list price is used which may be very low.
• Pool Car - if a company car is not normally kept at any individual's residence, is not just used by one employee and where any private use is incidental to the business use, the car can qualify as a pool car and not be a taxable benefit at all.
• Cars in a Sole Trader or Partnership - by running a car through an unincorporated business for the business owner there is no benefit in kind. Instead the tax deductible expenses that can be claimed on the car are restricted by the private proportion of use but overall this is far more generous than the charges for a company owned car. Some businesses will split their business into two trading elements with the cars being held in the unincorporated side.
• Cash Contribution - the list price that the car benefit is based on is reduced by any capital contribution made by the employee up to a maximum of £5,000. It is possible for the company to loan the employee this amount as well, interest free, without there being a benefit in kind on the interest free loan.
• Company Vans - there is no taxable benefit where employees have to take their company vans home and are not allowed any other private use. Otherwise, the taxable benefit for the private use of a company van is £4,020. The difference between a large car and a van can be marginal, but vans are generally those built to carry goods with a design weight of up to 3,500Kg. From 6 April 2025, the classification of double cab pick-ups will need to be determined by assessing the vehicle as a whole at the point it is made available. Therefore, most double cab pick-ups are expected to be classified as cars when calculating the benefit charge. Transitional arrangements will apply where a double cab pick-up is purchased, leased or ordered before 6 April 2025 whereby the previous treatment will apply until the earlier of disposal, lease expiry or 5 April 2029.
• Private Fuel - a charge for private fuel applies even if only a minimal amount of private petrol is used so it is often better to avoid this in the first place or look at repaying the private fuel provided to avoid the charge.
• Home to work travel - be aware that this generally counts as private travel, not business travel.
• Tax Free Mileage Allowance - if you own the car personally and use it for business purposes, you can charge the business for business related journeys and receive the amounts tax free. The tax free limit is presently at 45p per mile for the first 10,000 miles and 25p thereafter and can often prove to be better to do this than to have a company car. The company can also reclaim VAT on the fuel element of this payment.

How We Can Help You

We can assist you with tax planning advice in relation to your company car. Please contact use for further advice.