Company Cars in 2026/27
What do you need to consider when getting the car from the company?
A company vehicle sounds like a simple perk until the tax comes into it. The right structure can save thousands of pounds a year and the wrong one can mean paying tax twice over.
- The Employer’s choice: buy or lease?
When the company:
owns the car – tax relief comes through capital allowances
leases – tax relief comes through rentals as they are paid.
| Factor | Outright purchase / HP | Operating lease (contract hire) |
| Tax relief | Capital allowances.
· Electric car- 100% first year allowance · Less than 50g/km – 14% a year · More than 50g/km – 6% a year
|
Monthly rentals deducted 100%
If emissions exceed 50g/km, 15% of the rentals are disallowed. |
| VAT | If there is a personal use of the car, 100% disallowable
|
· 50% of VAT on rentals claimable
· 100% on a separate maintenance package. |
| Cash flow & risk | · Large upfront cost
· company carries resale value risk · Relief is front loaded for EVs. |
· Predictable monthly cost
· no upfront lump sum · no residual value risk |
| Usually best for | Worth buying 100% electric car which are on demonstration. The cost is lesser than the list price and can claim 100% first year allowance | Better to go with Petrol/diesel cars where there is short replacement cycles and tight cash flow. |
| Employee Benefit in Kind (BIK) | Same | Same |
- The Employee’s choice: company car, salary sacrifice or cash scheme?
| Option | How it is taxed | When it works best |
| Company car | · Employee taxed on BIK (list price x emissions %).
· Employer pays 15% Class 1A NIC on BIK. |
· For Electric or very low-emission cars.
· Expensive for petrol/diesel cars. |
| Salary sacrifice | · Normal BIK applies for cars of 75g/km or less (from OpRA rules).
· Employee saves tax and NI on the salary given up. · Employer saves 15% on NI. |
· Electric cars and qualifying plug-in hybrids for employees earning comfortably above minimum wage |
| Cash allowance | · Cash allowance is taxed as ordinary salary
· No BIK and P11D · Employee claims 55p/25p per business mile. |
· Employee already has a car
· Higher-emission vehicle · Zero fleet admin for the business. |
The salary sacrifice trap:
Salary sacrifice is almost never worthwhile. Still, it works beautifully for electric cars and less emission cars. Employee pay shouldn’t be below the national minimum wage
- Quick decision guide
| Your situation | Usually the best route |
| Director wants a new electric car through the company | Company purchase – 100% first-year allowance plus 4% BIK |
| Employees want affordable access to electric cars | Salary sacrifice scheme |
| A petrol or diesel car is needed | Cash allowance for the employee
Lease if the company provides |
| Business wants no vehicle admin or risk | Cash allowance |
| Short-term need or cash flow is tight | Operating lease |
- Dates worth planning around
- The 100% first-year allowance for new electric cars ends on 31 March 2027. A real incentive to act before then.
- Electric car BIK rates rise gradually from 4% now to 9% by 2029/30, and a per-mile road charge for electric and plug-in hybrid cars is planned from April 2028. Factor the later years into any 3-4 year lease.
Talk to us before you sign anything
The best answer depends on the car, its emissions, who is driving it and how your business is structured. Our team of qualified accountants can run the numbers on your specific situation before you commit. Get in touch with Outsourced Acc today and we will help you find the most tax-efficient road forward.