Buying a Car Through Your Limited Company: When It Saves Tax (2026)

The honest answer: a petrol or diesel car through a limited company almost never saves tax in 2026. An electric car almost always does. Here is why, with the figures.

Illustration of an electric car with company tax savings compared to a petrol car

The question gets asked at the start of nearly every director meeting: should I buy my car through the company? For twenty years the answer was "it depends on the CO2". For 2026 the answer is simpler: if it is electric, yes. If it is petrol or diesel, almost certainly no.

Why petrol and diesel do not work

Buy a car through the company and HMRC treats the private use as a benefit in kind. For petrol and diesel cars, the BIK percentage depends on CO2 emissions and sits between 15% and 37% of the car's list price. A modern family saloon typically falls in the 25-30% band.

On a £35,000 petrol car at 27% BIK, the benefit is £9,450. A higher-rate taxpayer pays 40% income tax on that: £3,780 per year, every year of ownership. The company also pays Class 1A National Insurance at 13.8% on the BIK: another £1,304.

Against this: the company deducts the car's running costs and depreciation. For a non-electric car bought from new, capital allowances are 18% or 6% a year — not immediate — so the corporation tax saving is spread across many years. On a £35,000 car at 25% corporation tax, the lifetime corporation tax saving is maybe £8,750. The lifetime BIK cost over typical five-year ownership is £25,000+.

The maths does not work.

Why electric cars do work

Electric cars sit at a 3% benefit-in-kind rate for 2026/27, rising by 1% per year to 7% by 2029/30.

On the same £35,000 purchase price, now electric:

Over a four-year ownership: total personal tax cost roughly £2,000. Total company tax saving roughly £9,500. Net saving of around £7,500 compared with buying personally and taking the £35,000 as salary or dividend to pay for it. For a £60,000 car the saving is larger again.

Second-hand electric cars

The 100% first-year allowance only applies to new electric cars. A used EV gets 18% per year on a reducing balance basis — same as a normal car. The BIK at 3% still applies, so the personal side still works. The company side is less punchy than a new purchase, but the tax position is still favourable.

What about hybrids?

Plug-in hybrid rates depend on electric-only range for 2026/27:

Most PHEVs sold have 25-40 miles of range, placing them in the worst band. A pure EV almost always wins against a PHEV on tax, and the gap widens each year.

The sole-trader alternative

Sole traders cannot have a company car, because there is no company. Instead you claim either 45p per mile for the first 10,000 business miles and 25p after (the simple route, better for most), or actual running costs apportioned by business use. The mileage rate works out very well for a driver covering 10,000+ business miles a year, and the paperwork is a single spreadsheet.

What to do if you are weighing it up

Three questions decide it:

  1. Petrol/diesel or electric? If petrol/diesel, buy personally. If electric, continue.
  2. New or used? New gives you the 100% first-year allowance for the company. Used still works, just less powerfully.
  3. Will you use it mostly for business? If yes, consider leasing — lease payments are deductible immediately and avoid the capital allowance mechanics.

Getting help with this

AJH Accountants handles limited company accounting with director tax planning for clients across the UK. We file the return, tell you what you can claim, and deal with HMRC on your behalf, so nothing depends on you remembering a deadline.

See how our limited company accounting with director tax planning service works, or send us a quotation request and we will call you back. You can also call the office on 01204 840303.

Originally published at ajhaccountant.co.uk/blog/buying-car-through-limited-company-uk-2026.