Company Cars and Mileage – 2026/27

Two directors, two identical £35,000 cars, two completely different tax bills — purely because of how the vehicle was funded and what it runs on. One claimed mileage in their own diesel and paid nothing extra in personal tax. The other took the same car as a company vehicle and ended up with a four-figure annual tax charge. Swap that diesel for an electric equivalent, though, and the entire comparison flips on its head. This is the single most common question I get asked by director clients, and it genuinely doesn't have a fixed answer — it depends on the car, the mileage, and increasingly, the fuel type.

I've sat with clients who assumed a company car was automatically the smart, professional choice, and others who assumed mileage was always cheaper because "that's what my mate's accountant said." Neither assumption holds up consistently. The right answer for 2026/27 depends on running your own numbers against your own driving pattern, and this guide gives you exactly the figures you need to do that.

Company Car vs Personal Car – Which Is More Tax Efficient?

The Two Routes Compared

There are, broadly, two ways a director gets from A to B for business purposes. Either the company provides a car, which creates a personal benefit-in-kind tax charge alongside a Class 1A National Insurance cost for the company, or the director drives their own car and claims mileage from the company at HMRC's approved rates, which is entirely tax-free and deductible against the company's profit.

Why the Answer Depends on the Vehicle

For a conventional petrol or diesel car, mileage very often comes out cheaper, particularly for moderate business use. For an electric vehicle, the calculation changes dramatically, because the benefit-in-kind rate is so low that the tax cost of company ownership shrinks to a fraction of what it would be for a combustion vehicle, while the capital allowances available to the company add a further layer of saving mileage simply can't match.

Mileage Matters More Than People Think

The amount of genuine business mileage you cover each year is the other major variable. A director doing occasional local trips gets relatively little value from either route. A director racking up serious business mileage — regular client visits, multi-site work, a genuinely mobile role — starts to see the numbers diverge much more sharply, in either direction depending on the vehicle.

Electric Company Car Tax 2026/27

The 4% BIK Rate

Fully electric cars sit at a Benefit-in-Kind rate of just 4% for 2026/27, rising gradually to 5% in 2027/28, 7% in 2028/29 and 9% by 2029/30 — a fraction of the 17% to 37% bands that apply to petrol and diesel cars. On a £35,000 electric car, that's a taxable benefit of just £1,400 a year, £560 in tax for a higher-rate taxpayer — genuinely modest for the value of vehicle involved.

Corporation Tax Relief on the Purchase

Beyond the personal tax side, a company buying a new, unused, fully electric car can generally claim a 100% first-year capital allowance, deducting the entire purchase cost against taxable profit in the year of purchase. On a £35,000 car, that's relief worth up to £8,750 in corporation tax at the main rate, or £6,650 at the small profits rate — a substantial saving that simply doesn't exist for a personally owned vehicle claimed via mileage.

Charging Costs and the Company

Electricity provided by the company for charging a company-owned electric car isn't treated as a fuel benefit at all — it falls outside the fuel benefit charge that applies to petrol and diesel. Charging at home brings its own considerations around reimbursement rates, but broadly, the electric route avoids a tax trap that catches out plenty of directors running conventional company cars.

Company Car Benefit-in-Kind Rates

How the Bands Work

Every petrol, diesel and hybrid car is banded by its CO2 emissions, translating into a percentage applied to the car's P11D value to calculate the taxable benefit. Lower emissions mean a lower band; higher emissions push the percentage — and the tax — up.

Petrol and Diesel Rates for 2026/27

For 2026/27, conventional petrol and diesel cars sit in bands from 17% up to 37% of P11D value, with the cap rising further to 39% by 2029/30. A typical mid-range family petrol car often lands somewhere around the 25% to 30% mark, meaning a £30,000 car can easily generate an £8,000-plus taxable benefit each year.

Hybrids – A Rate That's Shifting Fast

Plug-in hybrids currently benefit from lower rates than pure petrol or diesel cars, generally in the 6% to 19% range depending on their electric-only range, but this advantage is set to erode quickly. From 2028/29, hybrid rates are due to rise sharply and the electric-range banding is being removed entirely, closing what's currently still a reasonably attractive middle ground. If you're weighing up a hybrid on a multi-year lease, it's worth modelling the full contract term, not just next year's rate.

Can My Company Pay for Fuel?

The Fuel Benefit Charge Explained

If your company pays for fuel used on private journeys in a petrol or diesel company car, a separate fuel benefit charge applies, calculated by multiplying a fixed annual figure — £29,200 for 2026/27 — by the same CO2-based percentage used for the car benefit itself, then taxed at your personal rate.

When It's Worth It

On a car in a 30% BIK band, the fuel benefit works out at £8,760 taxed at your marginal rate — £3,504 a year for a higher-rate taxpayer. That only makes financial sense if your genuine private fuel consumption would otherwise cost more than that figure, which, for most directors, it simply doesn't.

When It Isn't

For the majority of company car drivers with moderate private mileage, paying for the actual fuel used privately — and reimbursing the company for it, or simply not claiming it as a benefit at all — works out considerably cheaper than accepting the flat-rate fuel benefit charge. It's one of the more commonly over-claimed benefits we come across, usually set up once and never revisited as personal circumstances changed.

Paying for Business Fuel Only

Fuel genuinely used for business journeys, properly evidenced, is a straightforward allowable company expense with no personal benefit charge attached at all. The complication only arises around private mileage — keep the two clearly separated, and the fuel benefit question becomes much simpler to answer.

Mileage Allowance for Directors

The Approved Mileage Rates for 2026/27

If you use your own car for business journeys, your company can reimburse you tax-free at HMRC's approved mileage rates — 55p per mile for the first 10,000 business miles in a tax year, dropping to 25p per mile after that. This is a meaningful increase from the 45p rate that had been frozen since 2011, and it makes the mileage route noticeably more attractive than it was even a year ago.

How to Claim It

The company reimburses you directly, based on a simple mileage log — date, destination, business purpose, and miles travelled. No fuel receipts are needed, because the rate is designed to cover the whole cost of running the car for that mileage, not just the fuel itself.

What the Rate Is Meant to Cover

The approved rate bundles together fuel, insurance, servicing, depreciation and general wear and tear into a single figure. That's precisely why you can't claim mileage and separately claim fuel receipts for the same journeys — that would be double-claiming for costs the mileage rate already covers.

Passenger Payments

If you carry a fellow employee on a business journey, your company can pay an additional 5p per mile per passenger, entirely tax-free, on top of your own mileage claim — a small detail, but one that's easy to overlook and genuinely adds up over a busy year of site visits or team travel.

Company Car or Mileage – Worked Example

Scenario One: High Business Mileage, Petrol Car

A director drives 8,000 business miles a year in their own diesel car. Claiming mileage, they receive £4,400 tax-free (8,000 miles at 55p), fully deductible against the company's corporation tax. No personal tax arises at all, and the company has no Class 1A National Insurance to pay, no depreciation to absorb, and no ongoing running costs beyond the mileage reimbursement itself.

Now compare the same director taking a company-provided £35,000 diesel car in a 30% BIK band instead. The taxable benefit is £10,500 a year, costing a higher-rate taxpayer £4,200 in personal income tax, plus £1,575 in Class 1A National Insurance for the company — before accounting for the company also bearing the full cost of insurance, servicing and depreciation on the vehicle itself. For this level of business mileage, the mileage route comes out significantly ahead.

Scenario Two: Same Car, Electric

Now swap that £35,000 diesel for an equivalent electric car, taken as a company vehicle instead. At 4% BIK, the taxable benefit falls to £1,400 a year — £560 in personal tax for a higher-rate taxpayer, plus £210 in Class 1A National Insurance for the company. Add the 100% first-year capital allowance available on the purchase, worth up to £8,750 in corporation tax relief at the main rate, and the electric company car route now comfortably outperforms the mileage claim on the same driving pattern — a complete reversal from the petrol scenario above.

What the Numbers Tell Us

There's no single universal answer here, and anyone who tells you there is hasn't run the actual figures. For a petrol or diesel car, mileage in your own vehicle very often wins, particularly at moderate mileage levels. For an electric vehicle, the low BIK rate and generous capital allowances typically flip the outcome in favour of company ownership. The right choice depends entirely on the car you're considering and the mileage you genuinely expect to cover — which is exactly the calculation we run through with clients before a vehicle decision, rather than after one.

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Whether you're weighing up your first company car, wondering if it's time to switch to electric, or simply not sure whether mileage still makes sense for your driving pattern, the numbers are worth running properly before you commit. Get in touch with the team at Cannon Accountants, and we'll work through the actual figures for the specific vehicle and mileage you're considering.

This guide sits alongside our broader look at benefits in kind for directors, and it's one piece of the full picture covered in our complete Limited Company Tax Guide 2026/27: Corporation Tax, Dividends & Director Tax →.

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Disclaimer:

The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.