Should You Buy a Car Through Your Limited Company? Pros, Cons & Tax Implications Explained

They say: “A fine is a tax for doing something wrong. A tax is a fine for doing something right.”

But how much tax you pay? That’s often up for debate — especially when it comes to company cars.

If you run a limited company in the UK, you’ve probably asked yourself this question: "Should I buy my car through the business?"

It sounds smart on the surface — write off the cost, save on tax, maybe even drive something nicer without touching your personal wallet. I’ve had this conversation with dozens of directors over the years, and each time, the answer has been the same:

It depends.

Some people come out ahead. Others get stung with tax bills that make the whole thing feel pointless. Let’s dive into the pros and cons, using real stories and simple numbers to bring it to life.

✅ The Pros of Buying a Car Through Your Limited Company

1. Corporation Tax Relief

When your company buys a car, it can claim capital allowances on the cost. That means you deduct part (or all) of the purchase price from your company’s profits — reducing the Corporation Tax you pay.

Let me give you an example.

My client, Sarah, runs a small graphic design agency. Last year, she bought a fully electric BMW i4 through her company. Because it was an EV with zero emissions, she qualified for 100% first-year allowance. Her company knocked £48,000 off its profit, saving around £9,120 in tax.

For her, it was a no-brainer. The car was used mainly for business, and she planned to keep it long-term.

2. Running Costs Are Tax-Deductible

If your business owns the car, it can also pay for:

• Insurance

• Servicing and repairs

• Road tax

• Tyres

• Charging or fuel

These expenses are deducted from profits, reducing tax again.

One director told me, “It feels cleaner when everything goes through the business. I don’t have to separate what’s personal and what’s work — it just gets paid.”

That said, there’s a catch, which we’ll come to in the cons section.

3. VAT Savings — Sometimes

If your business is VAT-registered, you might be able to reclaim the VAT on:

• The purchase price (only if the car is used 100% for business)

• Lease payments (usually 50% reclaimable if there’s personal use)

• Running costs and fuel

But full VAT recovery is rare. HMRC is strict, and you’ll need airtight records to prove no personal use whatsoever.

One client of ours bought a Tesla through the company and installed a charge point at the office. They could reclaim VAT on the install, but not on the car — because the director occasionally drove it home.

4. Electric Cars = Huge Savings

The rules are designed to encourage low-emission vehicles. So if you’re thinking about buying a car through your company, an electric vehicle (EV) is almost always the most tax-efficient option.

Take this:

• BIK tax for EVs is just 2% in 2025.

• Compare that to 37% for some diesel cars.

One of our clients swapped his Audi A6 diesel for a company-owned Polestar 2. His personal tax bill dropped by over £3,000 a year — and the car was actually cheaper to run.

❌ The Cons of Buying a Car Through Your Company

1. Benefit-in-Kind (BIK) Tax Can Be Punishing

If you use a company car for personal trips — even just driving home from the office — you’ll likely pay BIK tax.

This is a tax on you personally, based on:

• The car’s list price (not what the company paid)

• Its CO₂ emissions

A high-emission car with a big price tag? That’ll hit hard.

One client learned this the hard way. He bought a £55,000 Range Rover through his company. Looked great. But his personal tax bill shot up by £6,800 a year. And since the car was also a gas guzzler, the company couldn’t reclaim much VAT either.

2. You Can’t Claim Mileage

When you use your personal car for business, HMRC allows you to claim mileage at 45p per mile (for the first 10,000 miles) and 25p after that.

But if your company owns the car? You can’t claim that rate. Instead, you're reimbursed at the Advisory Fuel Rate, which is far lower — especially for petrol or diesel cars.

3. Cashflow and Depreciation Risk

A new car is expensive. Paying upfront ties up company cash. Leasing spreads the cost but commits you to monthly payments.

Worse, if you buy the car outright and it drops in value, the business eats that loss — not you.

Remember Sarah with the BMW? She got a great tax break upfront. But if she sells the car after three years, the company will take the depreciation hit — not her personally.

4. More Admin, More Rules

Buying a car through your company means:

• Filing P11D forms every year

• Tracking personal vs business use

• Keeping detailed records

For some, it’s not worth the headache.

🧠 Final Thoughts: So, Should You Do It?

If you’re considering buying a car through your company, ask yourself three questions:

1. Is the car electric or low-emission?

2. Will it be used mostly for business?

3. Do I mind the extra admin and reporting?

If you answered yes to all three, then it’s probably worth a chat with your accountant.

If not, you might be better off keeping the car in your name and claiming mileage instead. That’s often the most tax-efficient route — especially for directors with low business mileage.

📌 Takeaway

Buying a car through a limited company can save tax — but only in the right situation.

• Go electric if you can.

• Avoid luxury or high-emission models unless you’re ready for the tax hit.

• Speak to your accountant before making any decisions. They’ll help you compare the numbers and avoid any nasty surprises.

And remember — when it comes to cars and tax, it’s rarely black and white. But with the right advice, it doesn’t have to be a car crash either.

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