In a nutshell: Buying a car through your limited company could save you money on tax and VAT, particularly if you choose an electric vehicle. But you’ll need to weigh up the costs, understand the tax implications and decide whether buying, leasing, or claiming mileage is best for your business.
If you’re running a business, a car can be a valuable tool for growth. And if you’re thinking about purchasing one, you’re probably wondering whether buying it through your limited company is the right financial move. Can you really save on tax? Are there any hidden costs? And how do you decide between buying or leasing?
Buying a car through a limited company could save you money and simplify your expenses. But there are rules to follow, taxes to consider and a few pitfalls to avoid. Get it right and you could save thousands. Get it wrong, and you might end up with unexpected bills or extra admin.
In 2024, over 840,000 UK businesses already ran a company car, with 344,000 (41%) being fully electric. As well as a way to go green, buying an electric vehicle (EV) can be a smart tax move thanks to generous capital allowances and lower benefit-in-kind (BiK) rates.
In this article, we’ll explain how it works, the tax implications and whether buying, leasing, or claiming mileage is most suitable for your business.
Can I buy a car through my business?
Yes, it’s possible to buy a car through a limited company, and it’s a common way for business owners to save on tax.
Whether you’re a new director or have been trading for years, the rules are the same: your company can purchase or lease a vehicle in its name, and you can use it for business trips. If you also use it for personal journeys, there are extra tax rules to consider – but we’ll cover those later.
The main thing to remember is that your business will need to be a registered limited company. If you’re a sole trader the rules are different, and you’ll usually be able to claim mileage instead. There’s little reason to worry about eligibility either. Even newer businesses can usually access financing options like leasing, which doesn’t require a long trading history.
The main question is whether buying a car through your business is the right decision – and that’s what this guide is here to help you decide.
How does buying a car through a limited company work?
If you buy a car through your limited company, your business will own it – not you personally. Your business can claim tax relief on the cost, which reduces your corporation tax bill. You’ll be able to use the car for business trips, but if you or your employees use it for personal journeys too, you’ll need to follow extra tax rules.
There are two main ways to get a company car: buying it outright or leasing it:
Buying makes the car an asset on your balance sheet, and you can claim capital allowances (a type of tax relief) over time
Leasing requires an up-front deposit but spreads the cost into monthly payments, which can be easier on your cash flow
Both buying and leasing have their pros and cons, and the right choice will depend on your business’s needs and how much you’ll use the car.
Most limited companies are eligible to buy a car through the business, but the financing options available will depend on trading history and revenue. If your business is very new (under six months) you may find leasing easier, since you won’t need to put down a large upfront payment.
5 reasons to buy a car through your limited company
There are some big advantages to using a limited company to purchase a vehicle for business. Here’s why it might be worth considering:
Tax relief: If you buy an electric car, you can claim 100% of the cost in the first year as a capital allowance – a huge upfront saving. Petrol and diesel cars still qualify for tax relief, but at a lower rate (6-18% per year)
VAT reclaim: You could claim back 50-100% of the VAT on both the purchase price and running costs, depending on how much you use the car for business. If it’s purely for work, you may be able to reclaim all the VAT
Cash flow: Leasing spreads the cost into manageable monthly payments, so you’re not tying up cash in a single purchase
Professional image: A company car can make your business look more established, which can be a great way to impress clients or attract employees
Employee perks: Offering a company car (or a car allowance) can be a tax-efficient way to reward your team, particularly if you opt for an electric vehicle with low benefit-in-kind tax
For example, if you buy an electric car for £30,000, your business could save over £6,000 in tax in the first year alone. And if you lease, you won’t have to worry about selling the car later – you can simply hand it back at the end of the term.
Of course, buying a company car is about more than just the savings. A company car can also make your life easier. You won’t have to track mileage for personal trips or worry about wear and tear on your own vehicle. Plus, if you choose an electric model, you’ll avoid congestion charges and benefit from lower running costs.
Is purchasing or leasing more suitable for your business?
Deciding whether to buy or lease a company car will depend on your budget, how long you want to keep the car and how you’ll use it.
| Outright purchase | Leasing |
|---|
| | Lower (deposit and monthly fees) |
| Yes (asset on your balance sheet) | Operating lease: No (return at end) Finance lease: Yes (option to buy at end with a final payment) |
| Capital allowances (100% for EVs) | Monthly payments are tax-deductible |
| Long-term use, high mileage | |
Buying a car for business outright can make sense if you plan to keep it for years and want to build an asset for your business. You’ll own the car and, once it’s paid off, you won’t have any more payments to make. But bear in mind that cars depreciate over time, so you might not get much back when you sell it.
Leasing is like renting, with the option to buy the car for an agreed fee (usually 20%) at the end of the term. You’ll pay a fixed monthly fee and, at the end of the term, you can usually either buy it outright or upgrade to a new model. Upgrading can be a good option if you want to drive a newer car without the commitment of ownership. It’s also easier on your cash flow, since you won’t need to pay a lump sum upfront.
Not sure which option is best? Think about how long you’ll need the car for and how much you can afford to spend. For example, if you drive a lot of miles or want to customise your vehicle, buying might be the better choice.
For more details on the differences between leasing options, read our guide on operating vs. finance leases.
What are the tax implications of buying a car through a limited company?
Tax is where things can get a little complicated. Here are the key things to know:
Corporation Tax relief: If you buy the car, you can claim capital allowances which reduce your taxable profits. Electric cars qualify for 100% first-year allowance, allowing you to deduct the full cost from your taxable profits in the first year. Petrol and diesel cars get a lower rate of 6-18% per year, depending on their CO2 emissions
VAT reclaim: You can reclaim 50% of the VAT if you use the car for both business and personal trips. If it’s purely for business, you can reclaim all the VAT
Benefit-in-kind tax: If you or your employees use the car for personal journeys, you’ll need to pay BiK tax. This is based on the car’s list price and CO2 emissions. Electric cars have the lowest rates, which is a big reason why they’re so popular
Let’s consider an example... Let’s say you buy a petrol car with CO2 emissions of 120g/km for £25,000. The BiK tax would be around £1,500 per year for a basic-rate taxpayer. But if you choose an electric car, the BiK rate is just 2% (for 2025/26), which could save you hundreds (or even thousands) in tax.
When buying a car for business through a limited company, you’ll also need to report the car on your end-of-year P11D form if it’s used for personal travel. This will help HMRC calculate how much BiK tax is due. If your company pays for fuel, that’s another taxable benefit.
Buying a van? The rules are different. So if you’re a tradesperson or need a larger vehicle, a van might be a more tax-efficient option.
Does a company car or personal car save you more?
If you’re torn between using a company car or sticking with your personal vehicle, here’s how they compare:
| Company car | Personal car + mileage claims |
|---|
| | You pay (claim 45p/mile for business trips) |
| Better for high mileage and EVs | |
| More (P11D forms, VAT records) | Less (just track mileage) |
A company car is usually the better option if you drive a lot for work. But if you only use your own car for work occasionally, claiming mileage might be simpler. You can claim 45p per mile for the first 10,000 business miles each year, and 25p per mile after that.
In 2024, 10.5 million UK workers used their personal car for business. If you drive less than 5,000 miles a year for work, mileage claims could be the easier choice. But if you’re racking up the miles, a company car could save you more in tax.
Are there hidden costs or drawbacks to be aware of?
There are plenty of benefits to buying a car through your limited company, such as tax savings and simplified expenses. But there are a few possible downsides to consider too.
Benefit-in-kind tax: As we mentioned earlier, using the car for personal travel will result in having to pay more tax. A high-emission car could cost you £3,000+ per year in BiK tax
Insurance: Company car insurance is usually 20-30% more expensive than personal policies
Depreciation: Cars lose value over time, which can be particularly painful if you buy it outright since you might not get much back if you sell it later
Admin: You’ll need to keep records of business and personal mileage, file P11D forms, and track VAT receipts
If you’re worried about cash flow, leasing can help spread the cost. But make sure you read the small print – some leases come with mileage limits or early termination fees which could add unexpected costs.
How to choose the right vehicle for your business
Choosing the right car for your business is less about what you like the look of and more about what makes financial sense. The biggest factor impacting this is emissions. Electric cars are much cheaper in terms of tax, since they attract 0% benefit-in-kind tax in 2025/26. By going electric, you’ll pay much less tax compared to petrol or diesel models. If you’re not ready to go fully electric, a hybrid could be a good middle ground, but the tax savings won’t be as high.
You’ll also need to decide whether to buy new or used. New electric cars qualify for 100% first-year capital allowances, which means you can deduct the full cost from your taxable profits straight away. But even though used cars don’t qualify for the full 100% allowance, they can still be a smart choice, particularly if you’re on a tighter budget. Just make sure to check the battery warranty if you’re buying a second-hand electric, since replacing a battery can be expensive. And don’t forget to think about the type of vehicle you need – if you’re a tradesperson or need extra space, a van or truck might be more tax-efficient than a car.
The used EV market is growing incredibly fast, with the battery electric car share reaching 26.5% in August 2025. There are plenty of options to choose from. But if you’re still unsure, ask yourself how much you’ll use the car for work. If it’s mostly for business, an electric model could save you thousands in tax. If it’s just for the odd trip, a smaller, more affordable option might be better.
How to keep on top of admin and stay compliant
Once you’ve got your company car, you’ll have some admin to stay on top of.
You’ll need to track your business and personal mileage, which you can do with a simple spreadsheet or an app. This is important because it affects how much benefit-in-kind tax you’ll pay at the end of the year. You’ll also need to keep all your VAT receipts for fuel, servicing and repairs, as these can be claimed back.
Each year, you’ll need to file a P11D form to report the car to HMRC. This form tells them how much the car has been used personally, so they can calculate the BiK tax. If your company pays for fuel, that’s an extra taxable benefit, so you’ll need to record that too.
It might sound like a lot of work, but Tide Expense Cards can make it easier. And if you’re ever unsure about what to claim, our guide to limited company expenses has all the details.
The main thing is to stay organised. That means keeping your receipts in one place, logging your mileage regularly and setting a reminder for the 6 July deadline for P11D forms. If you fall behind, it could become a real headache to figure out come tax time. But if you stay on top of it, you’ll avoid any surprises and make sure you’re claiming everything you’re entitled to.
Wrapping up
So, is buying a car through your limited company the right move for you? If you drive a lot for work, it could save you a significant amount in tax – particularly if you choose an electric vehicle. But if you only use a car occasionally, claiming mileage might be simpler and just as cost-effective.
If you’re leaning towards a company car, think about whether buying or leasing makes more sense for your business. Buying outright gives you an asset, but leasing spreads the cost and keeps your options open. And if you’re still not sure, talking to an accountant can help you weigh up the pros and cons.
Whatever you decide, make sure it fits your budget. Create a cash flow forecast to see how the numbers stack up and don’t forget to factor in running costs like insurance and maintenance. The right choice will depend on your business needs, your mileage and how much you’re willing to spend upfront. But with the right approach, a company car can be a smart investment that saves you money in the long run.
FAQs
Can I buy a car through my business if I’m a new director?
You should be able to. If your company’s new, leasing might be the easiest option, since it doesn’t require a big upfront payment. You could also consider using a director’s loan to fund the purchase.
Is it better to buy a car personally or through my limited company?
It depends on how much you’ll use it for business. If you drive a lot of miles, a company car can be more tax-efficient. But if you only use it occasionally, claiming mileage might be simpler.
What happens if my company can’t make the lease payments?
If you personally guaranteed the lease, you’ll be personally liable for the payments. Otherwise, the finance company could repossess the car. If you’re struggling to make payments, contact the leasing company immediately. They may be able to provide support such as payment holidays.
How do I sell a company car later?
If you bought the car outright, you have a few options: you can sell it privately, trade it in for a new model, or transfer it to another employee if your business no longer needs it. If you decide to sell the car, you’ll need to pay Corporation Tax on any profit if you sell it for more than its book value (ie the value it’s recorded at in your accounts). If you leased the car, the process is simpler – you can just hand it back at the end of the term or, in some cases, buy it outright for an agreed fee. Either way, make sure to check your lease agreement for any early termination fees or conditions.
How much mileage can I claim for business trips?
You can claim 45p per mile for the first 10,000 business miles each year, and 25p per mile after that. For more details, check out our guide to reimbursable expenses.
Photo by introspectivedsgn on Unsplash
