Business Car Loan UK: Company or Personal in 2026?

If you’re an owner-director wondering whether to take out a business car loan through your limited company or just buy the car yourself and claim mileage, the short answer is: it depends almost entirely on whether the car is electric or a petrol or diesel one. For a low-emission or fully electric vehicle, running it through the company is usually cheaper. For a petrol or diesel car, buying it personally and claiming mileage is very often the better route. The rest of this guide works through why, with figures at several price points so you can see where the crossover sits for your own situation.

What is a business car loan?

A business car loan is finance taken out by a limited company, partnership or sole trader to buy a vehicle for company use, rather than finance taken out in your own name. It sits alongside hire purchase, finance leasing and contract hire as one of several ways to fund a car through the business rather than your personal bank account.

The loan itself isn’t the hard part. Most UK lenders will offer business car finance to a limited company with reasonable trading history and a credit score above roughly 700, according to Swoop Finance. <cite index=”7-1″>Businesses will typically need a credit score above 700 to get the best deals, though it’s still possible to get finance with a lower score.</cite> The real decision, and the one that actually affects your tax bill, is whether the car should belong to the company at all.

Company or personal: the decision that actually matters

Before you compare finance products, work out ownership. This is the single choice that drives almost every other number in this article.

If the company buys or leases the car and you (or an employee) can use it privately, HMRC treats that as a Benefit in Kind (BIK). You pay income tax on the benefit, the company pays employer’s Class 1A National Insurance on top, and the company gets tax relief on the running costs. If you buy the car personally and simply claim mileage for business trips, there’s no BIK at all, but you lose the ability to claim capital allowances or reclaim any VAT on the purchase.

Which wins depends overwhelmingly on the car’s CO2 emissions. That’s the part most owner-directors get wrong, because the answer that was true for a petrol car in 2019 is the opposite of the answer for an electric car in 2026.

Company car tax (BIK) in 2026/27: the numbers that decide everything

The Benefit in Kind charge is calculated as: P11D value (list price, including VAT and options) × BIK percentage × your income tax rate.

For 2026/27, HMRC’s published appropriate percentages are:

These figures come from HMRC’s own guidance (EIM24705), so they’re the authoritative source rather than an estimate. The electric rate is confirmed to rise gradually: 4% in 2026/27, 5% in 2027/28, then 7% and 9% in the following two years. Even at 9%, that’s still a fraction of what a petrol or diesel car costs in BIK.

Employers also pay Class 1A National Insurance at 15% on the same BIK value, and this is a genuine company cost, not just a personal tax issue.

Why the electric vehicle position changes the whole calculation

Here’s the bit that catches a lot of directors out: the rules haven’t changed, but the numbers underneath them have shifted so much that the “always buy personally” advice from a decade ago is now often wrong for EVs.

A £45,000 petrol company car at the top 37% band creates a BIK of £16,650. A £45,000 electric company car at 4% creates a BIK of just £1,800, roughly a tenth of the tax charge for the same money spent. On top of that, new electric cars get a 100% First Year Allowance (more on this below), electricity isn’t subject to the fuel benefit charge that applies to petrol and diesel, and the company can usually reclaim VAT on business charging costs.

Put together, an electric car is often the one scenario where routing the purchase through the company beats buying it personally, even after accounting for VAT you can’t reclaim on the purchase price itself.

Capital allowances on a business car

If the company owns the car outright (bought or on hire purchase), it can claim capital allowances instead of deducting the full price in one go.

• New, unused, zero-emission cars: 100% First Year Allowance. The whole cost comes off taxable profits in the year of purchase. HMRC has confirmed this deadline extends to 31 March 2027 for Corporation Tax purposes (5 April 2027 for sole traders and partnerships), so there’s still time to use it.
• Cars with CO2 emissions of 1 to 50g/km (including used electric cars, which don’t qualify for the FYA): 18% writing-down allowance a year, added to the main capital allowances pool.
• Cars with CO2 emissions above 50g/km: 6% writing-down allowance a year, in the special rate pool. This is slow. On a £30,000 petrol car you’d only have written off around £1,800 by the end of year one.

Leased cars work differently: instead of capital allowances, you deduct the lease rental as a business expense. If the car has CO2 emissions above 50g/km, only 85% of the rental is deductible; the rest is disallowed to reflect the element treated as a hire-purchase-style capital cost.

VAT recovery limits on a business car

This is where company ownership loses ground fast, and it applies whatever the car’s emissions are.

Buying outright: you generally cannot reclaim any VAT on the purchase price of a car, according to HMRC’s VAT rules. The only real exception is where the car is genuinely unavailable for private use, kept at business premises overnight, with no home-to-work driving allowed, which rules out almost every director’s own car.

Leasing: the position is more generous. HMRC normally allows 50% of the VAT on the lease rental to be reclaimed, to reflect an assumed element of private use, even if the car is mostly used for work. If maintenance is itemised separately on the invoice, the VAT on that portion is fully reclaimable regardless of the 50% block on the rental itself.

Fuel: VAT on fuel or business charging can be reclaimed, with private use accounted for either through detailed mileage logs or HMRC’s fuel scale charge.

So a leased car recovers some VAT that an outright purchase never will. That’s one reason many companies choose Business Contract Hire over ownership, particularly for higher-value cars where the 50% VAT saving is meaningful in cash terms.

Mileage allowance as the alternative

If you buy the car personally, you sidestep BIK, capital allowance restrictions and VAT recovery arguments altogether. Instead, the company reimburses you (or you claim through Self Assessment if self-employed) using HMRC’s Approved Mileage Allowance Payment rates.

From 6 April 2026, HMRC raised these rates for the first time since 2011/12:

• 55p per mile for the first 10,000 business miles in a tax year
• 25p per mile after that
• Plus 5p per mile per passenger if you’re carrying a fellow employee on a business trip

This single rate is meant to cover fuel, insurance, servicing, road tax, depreciation and wear and tear, so you can’t also claim those costs separately if you’re using AMAP. A director doing 8,000 business miles a year could claim £4,400 tax-free with no BIK, no P11D entry and none of the VAT complications above. It’s simple, and for a petrol or diesel car it usually beats company ownership outright.

The trade-off: mileage doesn’t help if you’re doing very high annual mileage in an expensive petrol car, or if you specifically want the company to fund an EV to take advantage of the 4% BIK rate and the First Year Allowance.

Financing a car through your business: the options

Once you’ve decided the company should own or use the car, you’ve got several finance products to choose between.

Hire purchase (HP). Fixed monthly payments, the company owns the car outright once the final payment clears. You claim capital allowances from day one, as if you’d bought it outright. Good for a car you plan to keep long-term.

Finance lease. The company doesn’t own the car but rents it for most or all of its useful life. You deduct the lease payments as an expense rather than claiming allowances, subject to the 85% restriction on higher-emission cars mentioned above.

Business Contract Hire (BCH). A fixed monthly rental for an agreed term and mileage, with the car handed back at the end. No ownership, no capital allowance headache, and the 50% VAT recovery on rentals mentioned earlier applies. Popular for EVs where the technology and residual values are still moving quickly.

Business loan for outright purchase. A straightforward loan secured against the business (sometimes with a personal guarantee from the director), used to buy the car with no finance company involved in the ownership structure. Rates vary a lot by lender and credit profile: on a £25,000 vehicle over three years, you might see anywhere from around 7% APR at the strong end of the market to 19% APR or more for a newer or lower-scored business, according to figures from Capitalise’s business car finance calculator.

None of these products change the BIK or capital allowance rules above. What changes is cash flow, ownership timing and how much of the finance cost you can offset.

Buying a car through a limited company: step by step

1. Decide on ownership using the BIK comparison above. If it’s an EV, company ownership is usually worth serious consideration. If it’s petrol or diesel, run the mileage-allowance numbers first.
2. Get the P11D value confirmed with the dealer before you commit. BIK is based on list price, not whatever discount you negotiate, so a big discount doesn’t reduce your tax bill.
3. Choose your finance route (HP, lease, BCH or loan) based on whether you want to own the asset and claim capital allowances, or keep it off the balance sheet and deduct rentals instead.
4. Notify HMRC within 28 days of providing a company car using form P46(Car), or make sure it’s set up correctly through payrolling of benefits if your company uses that.
5. Keep a mileage and private-use log regardless of the route you choose. It supports your VAT position and protects you if HMRC ever queries private use.

Worked comparisons at different vehicle values

All examples assume a 40% (higher-rate) taxpayer director and a company paying Class 1A NI at 15%. Figures are rounded for clarity; always check your own numbers with an accountant before committing.

£20,000 electric car

• Company ownership: BIK = £20,000 × 4% = £800. Income tax on that: £320/year (about £27/month). Employer Class 1A NI: £120/year. Capital allowances: 100% FYA if new, so the full £20,000 comes off taxable profits in year one, worth £3,800 to £5,000 in Corporation Tax relief depending on your rate.
• Personal ownership: no BIK, but you lose the £20,000 First Year Allowance entirely and can only claim mileage for business trips.
• Verdict: company ownership is very likely the stronger option here, provided the car sees genuine business use.

£40,000 petrol car, 8,000 business miles a year

• Personal ownership with mileage: 8,000 miles × 55p = £4,400 tax-free reimbursement. No BIK, no P11D, no VAT complications.
• Company ownership (assume 30% BIK band): BIK = £40,000 × 30% = £12,000. Income tax: £4,800/year (£400/month). Employer NI: £1,800/year. Capital allowances restricted to 6% writing-down (special rate pool) if CO2 is above 50g/km, so relief trickles in slowly.
• Verdict: personal ownership with mileage claims wins comfortably for a mid-mileage petrol car.

£60,000 petrol or diesel car (top 37% BIK band)

• Company ownership: BIK = £60,000 × 37% = £22,200. Income tax: £8,880/year, or £740 a month, purely in personal tax. Employer NI: £3,330/year on top. That’s over £12,000 a year in combined tax before you’ve paid a penny towards the car itself.
• Personal ownership with mileage: same £4,400 to £6,600-ish tax-free reimbursement range depending on mileage, and none of the above.
• Verdict: at this price point, a high-emission petrol or diesel car through the company is close to the worst tax outcome available. If you want a car this valuable as a company asset, an electric equivalent changes the picture completely.

£60,000 electric car, for comparison

• BIK = £60,000 × 4% = £2,400. Income tax: £960/year (£80/month). Employer NI: £360/year. Total tax drag is roughly a tenth of the petrol equivalent above, plus the full £60,000 may qualify for the First Year Allowance if the car is new.

FAQs

Is it better to buy a car through my business or personally? 

For an electric or very low-emission car, buying through the business is usually cheaper once you account for the low 4% BIK rate and the 100% First Year Allowance. For a petrol or diesel car, buying personally and claiming mileage at 55p/25p per mile is very often the better route, particularly if your annual business mileage is moderate rather than very high.

What is the BIK rate for a company car in 2026/27? 

It ranges from 4% for fully electric cars up to a capped 37% for the highest-emission petrol and diesel cars, based on HMRC’s published appropriate percentage tables. Diesel cars that don’t meet the RDE2 emissions standard carry an extra 4% surcharge on top of their band.

Can I claim VAT back on a car bought through my company? 

Generally no, unless the car is genuinely unavailable for private use, such as a pool car kept at business premises with no home-to-work driving allowed. Most director-driven cars don’t qualify for full VAT recovery on the purchase price.

Can I claim VAT on a leased business car? 

Usually yes, but only 50% of the VAT on the lease rental, to reflect assumed private use. If maintenance is billed separately, that portion’s VAT is fully reclaimable.

What’s the current HMRC mileage allowance rate? 

From 6 April 2026, it’s 55p per mile for the first 10,000 business miles in the tax year, then 25p per mile after that, with a further 5p per mile if you’re carrying a business passenger. This was the first change to the rate since 2011/12.

Do capital allowances work differently for electric cars? 

Yes. New, unused, zero-emission cars qualify for a 100% First Year Allowance, letting you deduct the entire purchase cost from profits in year one. Petrol and diesel cars are restricted to 18% (low emission) or 6% (higher emission) writing-down allowances a year, spreading the relief out much further.

Is a business car loan the same as personal car finance?

No. A business car loan is taken out in the company’s name against its own credit profile, sometimes with a director’s personal guarantee, whereas personal car finance is based on your own income and credit history and has no bearing on the company’s tax position.

Do I need a good credit score to get business car finance? 

Most lenders look for a business credit score above roughly 700 for the best rates, though weaker scores can still secure finance, typically at a higher APR or with a personal guarantee required, according to Swoop Finance.

Does salary sacrifice for an electric car still make sense in 2026/27?

It can, because the low BIK rate on EVs (4% in 2026/27) is applied to the salary given up, so both the employee’s income tax and NI, and the employer’s NI, are calculated on a much smaller figure than the salary itself would have been. The saving shrinks slightly as the EV BIK rate rises in future years, so it’s worth reviewing at each lease renewal.