Should You Buy a Car Through Your Limited Company or Personally?

When you're running your own limited company, it can be tempting to buy a car through the business. After all, it seems more tax-efficient to have the company foot the bill — but is it really?

This post breaks down the pros and cons of buying a car through your limited company vs paying for it personally.

Option 1: Buying the Car Through Your Limited Company

✅ The Positives

1. Corporation Tax Relief: Your company can claim capital allowances on the car purchase price, which will reduce your corporation tax bill. Low-emission or electric vehicles currently benefit the most, with electric cars and cars with zero CO2 emissions able to claim 100% first-year allowances, meaning the total purchase price of the car can be deducted from your taxable profits.

2. Business Expense Deductions: Running costs such as insurance, fuel, repairs, and road tax can be classed as business expenses. This reduces your profit, and therefore your corporation tax bill.

3. VAT Reclaim (If VAT-Registered): You may be able to reclaim some or all of the VAT on the purchase, if it qualifies as a pool car, or if you buy it primarily for taxi, self-drive hire, or driving instruction.

❌ The Negatives

1. Benefit-in-Kind (BiK) Tax: If the car is used for personal journeys, including commuting, HMRC considers it a benefit-in-kind to the employee.

This means:

• You pay personal tax based on the car’s list price and CO₂ emissions.

• Your company pays Class 1A National Insurance on the benefit.

For most petrol or diesel cars, BiK can be very expensive. Even hybrids can carry a noticeable tax bill. Electric cars offer much lower BiK (currently 3% in 2025–26), making them the most tax-efficient option right now.

2. Loss of Personal Mileage Claims: If the car belongs to the company, you can’t claim the standard mileage allowance (45p/mile for the first 10,000 miles).

3. Admin and Complexity: You’ll need to submit a P46 to tell HMRC that you have provided an employee or director with a car for private use. You also need to submit a yearly P11D to HMRC to declare the benefit in kind.

Option 2: Buying the Car Personally

✅ The Positives

1. No Benefit-in-Kind Charge: Since the car is yours, there’s no BiK tax to worry about — even if you use it every day for business purposes.

2. Simpler Tax Relief via Mileage Claims: You can claim 45p per mile for the first 10,000 business miles each tax year, and 25p thereafter. This is meant to cover fuel, insurance, wear and tear, and depreciation.

3. Greater Flexibility and Privacy: It’s your car, so you're free to use it as you wish, without needing to account for personal versus business use.

❌ The Negatives

1. No Corporation Tax Relief on Purchase or Running Costs: You won’t be able to offset the cost of the car itself or associated running expenses against your company’s profits.

2. VAT Can't Be Reclaimed: Even if you're VAT-registered, you can’t reclaim VAT on a personal vehicle used for business.

Which Is Better?

Scenario	Best Option
Electric/Low-Emission Vehicle	Often better through the company (due to low BiK and full capital allowances)
High-Emission or Expensive Car	Usually better personally (BiK can outweigh tax savings)
Low Business Mileage	Buy personally and claim mileage allowance
High Business Mileage	May lean toward company purchase if running costs are high

Final Thoughts

Whether or not to buy a car through your limited company or personally depends on several factors, including:

• Type of vehicle

• Business mileage

• Emissions

• Cost of the car

• Your overall tax situation

In many cases, buying the car personally and claiming mileage may be the simplest and most tax-efficient option — unless you’re opting for a low-emission or electric vehicle, in which case company ownership might be more tax-efficient.

📌 Tip: Always speak to your accountant before deciding — car tax rules change frequently, and the right choice can save (or cost) you thousands.