Transcription
Don't buy or lease a company car in 2026 until you've watched this video because the wrong setup doesn't just cost you a bit more each month. It can add thousands and hidden tax every single year.
Most UK directors assume that putting the car through the company saves tax. But with petrol or diesel cars, it often does the exact opposite thanks to something called benefit in kind tax. So, in this video, I'm going to compare company versus personal ownership and leasing versus buying across both petrol and electric cars. And by the end, you'll know exactly where the car should sit, in your company or in your own name.
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Now, before we look at the actual numbers, there's one big mistake most directors make. They assume the real decision is should I lease or should I buy? But that's not actually the case. The real question is should the car sit in the company at all? Because the moment your company owns a lease as a vehicle and you use it privately, HMRC treats it as a taxable benefit which means that you're potentially paying firstly benefit in kind. So BIC, we'll call it for short personally. employers and I through the company and this is where petrol and electric vehicles start behaving very differently because once you layer those taxes on top of the cost of the car itself company paid does not always mean personally cheaper especially when it's your company. In fact, with many petrol vehicles putting it through the company can actually be the most expensive option. Let me show you why.
To keep this simple, let's use a like forlike petrol electric example and we'll compare the different routes because the strange thing about the UK tax system is this. The exact same car can either be a taxefficient business expense or a very expensive personal benefit depending purely on where it sits. So for this example, I'm using a BMW 320i M Sport Pro saloon. Not too high-end, but a nice premium car a lot of directors might consider. And I'm not a petrol head by any means. The numbers I'm using here come from leasing.com for the lease pricing. So, it's based on real market pricing. Now, the list price is about £46,080 and current lease pricing is roughly 666 a month, which works out just under eight grand a year. So far, seems perfectly reasonable. But the real issue isn't the lease price, it's the tax. Because this car produces 151 grams per kilometer of CO2. So HMRC places it in a 36% bick band as a direct result of that. So whether the company leases it or buys it, if you use it privately, the car creates a taxable benefit of roughly 16,589 a year. And that tax repeats every single year you have the car. Even though the lease itself is only costing you about eight grand a year, if you're a 40% taxpayer, that works out at roughly 6,636 a year in personal tax plus 2,488 in employers NI. So the tax alone could exceed 9 grand a year, which is more than the lease itself. And that's before you've even enjoyed the car. There's another catch as well. Because this car emits more than 50 grams per kilometer, HMRC normally restricts 15% of the lease deduction. So the company doesn't even get full tax relief on rental payments.
Now you might be thinking, fine, I'll just buy the car instead through the company. But unfortunately that doesn't solve the core problem because the benefit in kind charge stays exactly the same whether the company leases or buys the company because the benefit in kind charge stays exactly the same whether the company leases or buys the vehicle. And when the company purchases a petrol car with emissions above 50 grams per kilometer, HMRC also normally only allows 6% capital allowances, which means the tax relief comes through really slowly. As as you can see, switching from company lease to company purchase doesn't really fix the issue.
So, let's take the exact same car and see what happens if it sits with you personally instead. And if you're currently thinking about getting a car through your business, don't worry. If you're struggling, we can help you run the numbers properly before you commit to anything. That's what we do regularly for our clients. So, if you want us to look at your situation and work out the most taxefficient option, you can get a quote using the link in the description below.
So the good news is that once the car sits in your own name rather than the company's big tax problem disappears because benefit in kind only applies when the company provides the vehicle. So if you own or lease the car personally there's no company car tax at all. So straight away that removes the biggest cost we saw in the company example and that's why the personal route becomes so appealing for high emission vehicles. But at that point, the question it changes slightly. It's no longer um really a tax question. It becomes more of a financial and lifestyle decision about really how you want to pay for the car. Most people compare leasing and buying, but the real difference is this. Leasing means you're paying to use the car. Buying means you're paying to own it. With leasing, you typically pay an initial payment, fixed monthly payments, and then you hand the car back at the end. So, you never actually own the vehicle, but you also avoid putting a large amount of cash down. Buying works very differently. So, if we look at buying, you either pay for it outright or you finance it personally through something like um HP or PCP. And that matters because when people say they're buying a car, they don't always mean they're handing over the full price in cash on day one. HP is closer to a straight purchase and installments. You're working towards ownership. PCP, it's more of a halfway house because usually it's got lower monthly payments, but it often includes that large final balloon payment if you want to keep the car. That is, which is why PCP often looks cheap right up until the end. And there's another important difference as well. When you lease, the finance company carries the depreciation risk. When you buy, that risk sits with you. So yeah, leasing can feel cheaper monthto-month, but part of that is because you're paying for use, not ownership. And once you bring PCP or HP into the picture, you also need to remember that lower upfront cost often comes with finance charges, with interest, and just generally with a longer commitment. So the decision between personal leasing and personal purchasing usually comes down to cash flow, whether you want to own the vehicle, how long you normally keep your cars, and whether you're comfortable carrying depreciation risk.
So from a tax point of view, petrol cars usually make more sense outside the company. But there's one important exception to this rule, and that's where electric vehicles change the numbers completely.
So, let's run the same type of example again, but this time using an electric vehicle. So, for this comparison, I'm going to use kind of the closest to it, which is a a Tesla Model 3 rearwheel drive four-door auto. I'm using leasing.com again for the market pricing just to keep everything consistent. leasing.com shows this exact Model 3 from £317.17p a month with a vehicle value of roughly £37,925 and zero emissions. That vehicle value is important because leasing.com states that it's based on the car's P1D value which is the figure used to calculate company car tax and the emissions figure is what determines the tax band because the 2627 fully electric company cars sit at 4% benefit in kind band not 36% like the petrol BMW we looked at earlier. So instead of creating a taxable benefit of more than 16 grand a year, this Tesla creates a taxable benefit of only around 1,500 a year for a 40% taxpayer. That works out at roughly £67 a year in personal tax and around £228 a year in employers NI. So the total annual cost is well under a grand, £1,000, which suddenly feels a lot more reasonable. Compare that to the petrol example earlier where the tax alone was over nine grand a year. And this is exactly why it's worth running the numbers properly before choosing how to fund a car and where it should sit because depending on the vehicle and how you structure it, the difference can easily be thousands of pounds a year in tax. And if you want to look at your situation and work out the most taxefficient option, there's a link in the description below where you can get a quote.
If a company leases a Tesla, you still get the same lifestyle benefits that make leasing attractive in the first place. So, predictable monthly payments, for example. There's no long-term ownership risk. Um, and it's without the massive tax charge. That's the key difference. If the company decides to buy the EV, that's where things become even more interesting because new zero emission cars can still qualify for 100% first year allowances, allowing the company to deduct the full cost against profits. And HMRC's extended the treatment to 31st of March 2027 for corporation tax purposes. And all that means is that the company might be able to claim tax relief on the entire purchase cost immediately. Another small advantage is charging. If the company provides electricity for charging the car at the workplace, that normally is not treated as a taxable benefit. So for many directors, EVs, electric vehicles are the one area where company lease or company purchase can genuinely compete really well with the personal routes. That doesn't mean the personal route options become bad suddenly. If you lease an EV personally, you can still get the normal benefits. You know, lower upfront cost, predictable monthly payments, and a clean separation between your personal car and your company. But the big difference is this. With petrol cars, the company route often creates a tax problem. With EVs, that problem almost, not totally, almost disappears. So putting the car through the company becomes a much more realistic option if you want the business to fund it. That said, EVs aren't completely taxfree anymore. So electric vehicles are now inside the vehicle excise duty regime and from the 1st of April 2026, the expensive car supplement threshold, it's a bit of a mouthful for zero emission cars rises from 40,000 to 50,000. So EVs are still tax efficient compared with petrol vehicles, but they're no longer the kind of completely untouchable freebie that they once were.
The biggest mistake that directors make with company cars, though, is assuming there's one best way to do it. There isn't because the right answer depends on two things. What kind of car you want and whether the company needs to be involved at all. And once you understand that, the pattern becomes pretty clear. Then petrol cars usually work better personally. Electric cars often work better through the company. But the exact answer still depends on your situation, your tax band, your company profits, and how you plan to fund the car. So don't just look at the monthly payment. Look at the total cost after tax. And that's where the real savings are. See you next time.