Buying a car through your limited company in 2026/27: is it worth it?
Electric or petrol, company car or mileage claims: how the numbers work for directors this year.
The short answer: For a fully electric car, buying or leasing through your limited company is usually very tax-efficient: the benefit-in-kind rate is only 4% in 2026/27, and a new electric car bought by 31 March 2027 can be deducted in full from company profits. For a petrol or diesel car, it is usually cheaper to own the car yourself and have the company pay you 55p a mile for business journeys.
Option 1: a company car
When the company buys or leases a car that you can also use privately, the company pays for it and claims the costs, but you pay tax on a benefit in kind. The benefit is a percentage of the car's list price, based on its CO2 emissions. The company also pays Class 1A National Insurance at 15% on the benefit.
| Type of car | 2026/27 |
|---|---|
| Fully electric | 4% |
| Plug-in hybrid (1–50 g/km) | 4% to 16% |
| Petrol (typical) | 25% to 30% |
| Highest-emission petrol and diesel | 37% |
The electric car rate is set to rise to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30, which is still far below petrol and diesel cars. Plug-in hybrid rates depend on the car's electric range.
Example: electric car with a £40,000 list price
| Item | Per year |
|---|---|
| Benefit in kind (4% × £40,000) | £1,600 |
| Tax for a basic-rate taxpayer (20%) | £320 |
| Tax for a higher-rate taxpayer (40%) | £640 |
| Class 1A National Insurance paid by the company | £240 |
If the company buys the car new and unused by 31 March 2027, it can claim a 100% first-year allowance and deduct the full £40,000 from its profits. At the 19% rate that saves £7,600 in Corporation Tax, and more if profits are in the marginal relief band. This allowance ends on 31 March 2027 for companies, so timing matters.
Example: petrol car with a £30,000 list price
At a 30% rate, the benefit is £9,000 a year. A higher-rate taxpayer pays £3,600 a year in tax and the company pays £1,350 in National Insurance. Most petrol and diesel cars also only get tax relief at 6% a year through capital allowances. In most cases, this makes a petrol company car poor value.
Option 2: use your own car and claim mileage
If you own the car personally, your company can pay you a tax-free mileage allowance for business journeys. The payment is a business expense for the company and there is no tax or National Insurance for you.
| Business miles in the tax year | 2026/27 rate |
|---|---|
| First 10,000 miles | 55p a mile |
| Over 10,000 miles | 25p a mile (35p from April 2027) |
For example, 8,000 business miles in 2026/27 lets the company pay you £4,400 tax-free and saves the company £836 in Corporation Tax at 19%. Travel between home and a permanent workplace is commuting and does not count, but trips to clients, sites and temporary workplaces usually do. Keep a mileage log with dates, destinations and the reason for each trip.
Leasing, VAT and vans
- Leasing. Lease payments for an electric car are fully deductible. For cars with CO2 emissions over 50 g/km, 15% of the lease cost is not allowed.
- VAT. A VAT-registered company can usually reclaim 50% of the VAT on lease payments. VAT on buying a car can only be reclaimed if the car is used only for business and not available for private use.
- Vans. A van used privately has a fixed annual benefit charge, which is much lower than for most cars, and an electric van has none. Double-cab pick-ups are now usually taxed as cars.
Which option is right for you?
- A new electric car, bought or leased by the company, is usually the most tax-efficient choice for directors in 2026/27.
- If you drive a petrol or diesel car, keeping it personally and claiming 55p a mile is usually better.
- If you plan to buy an electric car, consider doing it before 31 March 2027 to get the 100% allowance.
Thinking about a car through your company?
We will compare buying, leasing and mileage using your own figures and make sure the car is set up correctly for tax, payroll and VAT.
Book a free strategy callFrequently asked questions
Is an electric company car worth it in 2026/27?
Usually, yes. The benefit-in-kind rate is only 4%, the company can deduct the full cost of a new car bought by 31 March 2027, and running costs are deductible. For most directors it is the most tax-efficient way to drive a new car.
Can I transfer my own car to my company?
Yes. The company buys it from you at market value. You then pay benefit-in-kind tax on it, and because the car is not new, it does not qualify for the 100% first-year allowance.
What is the mileage rate for 2026/27?
55p a mile for the first 10,000 business miles and 25p a mile after that. From 6 April 2027, the rate above 10,000 miles rises to 35p.
Can I claim mileage for my own electric car?
Yes. If you own the electric car personally, the same 55p and 25p rates apply for business journeys.
Does the 100% allowance apply to second-hand electric cars?
No. Only new and unused zero-emission cars qualify. Second-hand electric cars get capital allowances at the main rate instead.
Related guides
- Corporation Tax rates 2026/27: 19%, 25% and marginal relief
- Salary vs dividends 2026/27: how to pay yourself tax-efficiently
- VAT registration threshold 2026/27: the £90,000 rules explained
This guide is general information for the 2026/27 tax year and is not personal tax advice. Benefit-in-kind rates depend on each car's list price, emissions and electric range, so check the exact figures for your car and speak to an accountant before you buy.
