You run a limited company, you need a car for work, and you want to know the smart way to pay for it. Should the company buy or lease the car, or should you own it personally and charge the business a mileage rate?
There's no single right answer. The cheapest route depends on the type of car, how many business miles you do, and how much personal use creeps in. Get it right and you keep more profit in the company. Get it wrong and you hand HMRC a benefit-in-kind bill you didn't need to pay.
This guide walks through both routes with current 2025/26 figures, shows you a clear worked comparison, and gives you a simple set of decision steps. It's written for owner-directors of small limited companies, contractors and consultants who do a meaningful chunk of business driving.
What are the two options?
When your limited company needs a car, you're really choosing between two ownership models.
Option 1: You own the car personally. You buy or lease it in your own name. When you drive for business, you claim a tax-free mileage rate from the company. The company gets a deduction for what it pays you; you get reimbursed without any tax to pay, as long as you stay within HMRC's approved rates.
Option 2: The company owns the car. The business buys or leases it and pays the running costs. Because you have private use of it, the car is a benefit in kind, so you pay personal tax on it and the company pays employer National Insurance on the same value.
Directors are office-holders, so the benefit-in-kind rules apply to you exactly as they would to any employee. There's no special exemption just because you own the business.
How does claiming mileage work?
If you own the car personally, you claim HMRC's Approved Mileage Allowance Payments, usually shortened to AMAP. These are flat pence-per-mile rates designed to cover fuel, insurance, servicing, wear and tear, and depreciation all in one.
For 2025/26 the AMAP rates for cars and vans are:
| Business miles in the tax year | Rate per mile (2025/26) |
|---|---|
| First 10,000 miles | 45p |
| Each mile above 10,000 | 25p |
| Passenger carried (per fellow employee) | 5p |
Source: gov.uk travel mileage and fuel rates.
A few things worth knowing:
- These rates cover all the costs of running the car. You don't claim fuel, insurance or repairs on top.
- The 10,000-mile threshold is per tax year, across all the cars you use for that employment.
- Only business journeys count. Your normal home-to-work commute doesn't qualify.
- If your company pays less than the approved rate, you can claim tax relief on the shortfall through your Self Assessment return.
One forward-looking point to flag, because it's already published: HMRC has confirmed the car and van rate rises to 55p for the first 10,000 miles from 6 April 2026. So if you're modelling next year's numbers, use 55p, not 45p.
How is a company car taxed?
If the company owns the car and you have private use of it, you're taxed on a "benefit in kind". The taxable value is worked out like this:
P11D value x appropriate percentage = taxable benefit
The P11D value is broadly the list price of the car plus options. The appropriate percentage is set by the car's CO2 emissions, so a clean car is taxed lightly and a high-emission car heavily. You then pay Income Tax on that benefit at your marginal rate, and the company pays employer (Class 1A) National Insurance on the same figure.
For a petrol or diesel car the appropriate percentage can be substantial. That's the heart of the problem with traditional company cars: a petrol hatchback can carry a benefit-in-kind charge that runs into thousands of pounds a year, on top of the actual running costs.
The picture is very different for electric cars, which we cover below.
Worked example: company car vs mileage
Let's compare the two routes for a typical owner-director who needs a conventional petrol car. The point isn't the exact pounds, it's the shape of the answer.
Illustrative example. Sam is the director of a small consultancy. Sam drives 8,000 business miles a year and is a higher-rate taxpayer (40% Income Tax). Sam is choosing between owning a petrol car personally and claiming mileage, or having the company provide the same petrol car.
Route A: own the car, claim mileage (2025/26)
- 8,000 business miles, all within the first 10,000, at 45p.
- 8,000 x 45p = £3,600 paid to Sam, completely tax-free.
- The company also gets a £3,600 deduction against its profits.
Sam pays the car's running costs personally out of that £3,600. There's no benefit in kind and no extra tax.
Route B: company petrol car
- Say the car has a P11D value of £30,000 and an appropriate percentage of 30% based on its emissions.
- Taxable benefit = £30,000 x 30% = £9,000 a year.
- Sam's personal Income Tax at 40% = £9,000 x 40% = £3,600 a year.
- The company also pays employer National Insurance at 15% on the benefit (the 2025/26 employer rate): £9,000 x 15% = £1,350 a year.
So before you even count fuel, insurance and servicing, the company petrol car creates £3,600 of personal tax plus £1,350 of company National Insurance every year. The company does get to deduct the running costs, but for a conventional car with moderate business mileage, the mileage route is usually far cheaper.
The employer National Insurance rate of 15% is the 2025/26 figure from gov.uk rates and thresholds for employers. The Income Tax rates are the 2025/26 gov.uk Income Tax rates.
The lesson: for a petrol or diesel car with average mileage, claiming AMAP usually wins comfortably. The maths only flips when emissions are very low.
What about electric company cars?
This is where company ownership becomes genuinely attractive, and it's the reason the "company car" question is worth revisiting if you last looked at it years ago.
A fully electric car emits 0 g/km of CO2, so the appropriate percentage is tiny. For 2025/26 the appropriate percentage for a zero-emission car is just 3%, rising to 4% for 2026/27. Those figures come from HMRC's appropriate percentage tables.
Illustrative example. Take the same £30,000 P11D value, but now it's an electric car.
- Taxable benefit = £30,000 x 3% = £900 (2025/26).
- Sam's Income Tax at 40% = £900 x 40% = £360 a year.
- Company employer National Insurance at 15% = £900 x 15% = £135 a year.
Compare that with £3,600 of personal tax on the petrol version. The benefit-in-kind cost has collapsed because the percentage is 3% instead of 30%.
On top of the low benefit charge, two things make a company-owned electric car efficient:
- A new and unused zero-emission car bought by the company qualifies for a 100% first-year allowance, so the cost is set against the company's profits in the year of purchase. HMRC has extended this to expenditure on or before 31 March 2027 for Corporation Tax. See the gov.uk first-year allowances guidance. (Cars don't qualify for the Annual Investment Allowance, so this dedicated allowance is what makes the timing work.)
- Reimbursing business electricity is cheap. HMRC's advisory electricity rate from 1 June 2026 is 7p per mile for home charging and 15p for public charging, per the gov.uk advisory fuel rates.
For an electric car with real business use, company ownership often beats claiming mileage. For a petrol or diesel car, it usually doesn't. That single distinction drives most of the decision.
If you want to model the personal-tax side of an EV salary against dividends, our income tax calculator is a quick way to see your marginal rate before you commit.
Which route should you choose?
There's no universal winner, but these steps get you to the right answer quickly.
- Is the car electric or very low emission? If yes, seriously model the company-car route, the low appropriate percentage and the first-year allowance often make it the cheaper option. If it's a normal petrol or diesel, lean towards owning it personally and claiming mileage.
- How many business miles do you do? High business mileage favours AMAP, because the tax-free pence-per-mile stacks up. Low mileage weakens the case for any car arrangement at all.
- How much private use is there? A car that's mostly personal is a poor candidate for company ownership, you'll pay benefit-in-kind tax on private use you can't avoid.
- Do you want the admin? A company car means P11D reporting, Class 1A National Insurance, and keeping the paperwork straight. Mileage claims are simpler: a logbook and a clear record of business journeys.
- Check the running-cost reality, not just the tax. AMAP has to cover everything: fuel, insurance, servicing and depreciation. For some drivers the 45p covers it comfortably; for others a thirsty or expensive car eats the allowance.
In practice, the most common mistake we see is a director putting a conventional petrol car through the company "because it feels efficient", then getting a benefit-in-kind bill that dwarfs what simple mileage claims would have cost. The reverse mistake, claiming mileage on a personal EV when the company could have bought it and slashed the tax, is just as expensive.
Not sure which way the numbers fall for your car and mileage? Book a free 20-minute call with a Zmartly accountant and we'll run both routes against your real figures. Explore our tax advisory service or see how we support limited companies day to day.
You can also test the mileage side yourself with our mileage calculator, and if you contract through a company, our contractor accounting page sets out how we handle this alongside your wider tax planning.
FAQs
Can I claim 45p per mile if the company owns the car?
No. The 45p AMAP rate is for cars you own personally. If the company owns the car, you can only be reimbursed for business fuel, and for electric cars that's done using HMRC's advisory electricity rate rather than AMAP.
Is a director treated as an employee for company car tax?
Yes. Directors are office-holders, so the benefit-in-kind rules apply to you just as they would to any employee. There's no exemption for owning the business.
Are electric company cars really cheaper than claiming mileage?
Often, yes. The appropriate percentage for a zero-emission car is only 3% for 2025/26 (4% for 2026/27), and a new electric car can qualify for a 100% first-year allowance. For petrol and diesel cars the company route is usually more expensive than claiming AMAP.
What records do I need to claim business mileage?
Keep a mileage log showing the date, journey, business purpose and miles for each trip. You'll need it to support the tax-free reimbursement and, if relevant, any tax relief you claim on a shortfall.
Does my commute count as business mileage?
No. Travel between your home and your normal place of work is ordinary commuting and doesn't qualify for AMAP. Only genuine business journeys count towards the 10,000-mile threshold.
