Should You Put a Car Through Your Business? Here’s the Best Strategy for 2025/26

 

If you’re a UK business owner considering putting a car through your company, timing and vehicle choice matter more than ever. With changes in tax rates, growing incentives for electric vehicles (EVs), and several ways to structure the purchase, making the right decision can save you thousands in tax.

This guide breaks down the best strategy for 2025/26, including:

• Buying vs leasing

• Electric vs hybrid vs traditional fuel

• P11D consequences

• What’s tax-efficient (and what’s not)

  
  

⚡️ 1. Electric Cars: Still the Most Tax-Efficient Option

Electric cars (EVs) remain the most tax-friendly option for company vehicles.

🔹 Company Car Tax (Benefit in Kind – BIK) for Electric Cars:

• 2025/26 BIK rate for 0g/km CO₂ vehicles: 3%

• This means if your EV has a list price of £40,000, the taxable benefit is only £1,200

• For a director in the 40% tax band, this equates to just £480 per year in personal tax

  
  

✅ Why electric cars are a win:

• Low BIK (P11D) value

• 100% first-year allowance if bought outright (deduct full cost from profits)

• No road tax

• Lower maintenance and fuel costs

💡 Best for: Directors who want to drive a new, high-value vehicle without being hit by personal tax or high NI charges.

🔋 2. Plug-In Hybrids (PHEVs): A Middle Ground?

Plug-in hybrids offer some savings, but not nearly as attractive as full EVs.

🔹 Company Car Tax (BIK) for Plug-In Hybrids in 2025/26:

Rates depend on CO₂ emissions and electric range.

Example:

• A hybrid with 30–39 miles electric range and CO₂ emissions of 45g/km = 12% BIK

• Same £40,000 list price = £4,800 benefit

• 40% taxpayer = £1,920 personal tax bill per year

So, still significantly more than a fully electric car.

💡 Best for: Those who regularly travel long distances and aren't ready to go fully electric but still want some tax efficiency.

💳 3. Purchase Options: Cash, Hire Purchase, or Lease?

How you acquire the vehicle affects both your corporation tax deductions and your cash flow.

✅ Option A: Buy with Cash or Hire Purchase (HP)

• EVs qualify for 100% first-year capital allowance

• Claim full cost against profits in year 1 (if new and unused)

• You own the car outright (eventually), so long-term value

🔸 Hire purchase qualifies too—but only once ownership transfers.

💡 Good for: Businesses with healthy profits looking for a tax deduction and asset ownership.

✅ Option B: Business Lease (Contract Hire)

• No capital allowance

• But you can deduct monthly lease payments as business expenses

• Usually includes maintenance

• VAT-registered businesses can reclaim 50% of the VAT on lease costs (and 100% on maintenance)

💡 Good for: Predictable monthly costs and no large upfront payment.

⚠️ P11D: What Does It Cost You Personally?

If your company provides a car you also use privately, HMRC considers it a benefit in kind.

• You’ll be taxed on a percentage of the car’s list price (BIK rate depends on emissions)

• This gets reported via P11D, and you’ll owe personal tax accordingly

👉 Electric car = 3% of list price👉 Hybrid = 8%–14% depending on range👉 Petrol/diesel = 20%–37%

📌 And don’t forget: your company also pays Class 1A National Insurance (13.8%) on the benefit value.

🔄 What About Mileage?

If you use your own car for business, you can claim HMRC-approved mileage rates:

• 45p per mile for the first 10,000 miles

• 25p after that

This can be simpler—but you miss out on the asset and the corporation tax savings.

✅ So, What’s the Best Strategy for 2025/26?

🔋 Go Electric — if:

• You want a tax-efficient, modern vehicle

• You can claim 100% of the cost against profits

• You want low personal tax impact (3% BIK)

🛞 Consider Hybrid — if:

• You travel long distances and need fuel backup

• You want lower emissions but aren’t ready for full electric

💷 Choose Purchase — if:

• You want ownership and maximum tax deduction (especially on EVs)

📄 Choose Lease — if:

• You want fixed monthly costs, lower commitment, and fewer admin headaches

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📣 Final Thought: Speak to an Accountant Before You Buy

The best decision depends on your:

• Profit levels

• VAT status

• Personal tax rate

• Business structure (sole trader, limited company, etc.)

A quick conversation before you commit can save you thousands.

💬 Need help running the numbers?

At Vision Accountants, we help small business owners like you plan smarter, spend wisely, and avoid tax traps. If you're considering a company car—or any major purchase—let’s talk first.

📩 Get in touch by emailing us at silvia@visionaccountants.co.uk to make the best choice for your business and your wallet.